Think of a toll booth on a highway. When you pay the toll, a part of it covers the infrastructure and maintenance of the road. Once you pay and pass through, you can smoothly travel the road without worrying about any other cost. Premium allocation charge in a ULIP plan works in a similar way. It is a percentage deducted from the policy premium you pay.
This charge covers the initial expenses related to setting up your policy, and the remaining amount after deducting other charges, is then invested in the chosen funds. It is essentially the cost associated with initiating and managing your investment within the ULIP structure.