Premium allocation charges are those that are deducted from the ULIP premium upfront. This is a percentage of the premium that is deducted before allocating the units for your policy. Premium allocation charges are levied by insurance firms in order to recover the initial expense incurred by them for issuing the policy. This will include costs such as distributor fee and the cost incurred for underwriting the policy. After deducting these charges, the balance is used to purchase units of the fund chosen by you.
Earlier, the high charges levied by insurance companies made way for rampant misselling by distributors and insurance agents. Now with the Insurance Regulatory and Development Authority of India capping the annualised charges of ULIPs at 2.25% for the first 10 years of holding, ULIPs might be worth looking at. Also, ULIP charges are required to be evenly distributed during the lock-in period.
If you are looking for a Life Insurance policy, click here.