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Finance

Understand How Withdrawals Work in ULIPs

Have you ever wondered what is ULIP policy, why you should invest in it, or how it can help you achieve your long-term financial goals? Well, ULIP is a great investment avenue that offers dual benefits of insurance and investments. The features of ULIP help you build wealth in the long run. ULIP enables you to select from equity, debt, or balanced funds, reap the benefits of compounding, and avail of tax deductions. The flexibility of withdrawing money and other benefits make ULIP one of the best investment instruments available in the market today.  

Withdrawal options in ULIP

Here are a few withdrawal choices available for you.

1. Withdrawal before the lock-in period of five years

All types of ULIPs have a fixed lock-in period of five years. If you want to withdraw a partial sum or wish to remove the money by exiting from the policy, you will have to wait until the lock-in tenure is over. If you stop paying the premium or surrender the policy, the insurer will move the amount invested till date to the discontinuance fund and levy the necessary charges.

2. Withdrawal after the lock-in period of five years

Once the lock-in duration of five years is over, it is advisable to withdraw partial amounts based on the financial requirements and ULIP performance. This feature allows you to fulfill the urgent need for funds. It prevents you from taking any loan or breaking the fixed deposits to finance your necessities. However, you should know about certain limitations before withdrawing a partial amount. Some terms and conditions include:  

  • Withdrawal limit

Your policy can be terminated if you withdraw a large chunk of the amount. The withdrawal limit may differ among insurers. Therefore, it becomes essential to understand the limitation of withdrawal while investing in the policy. Some insurance companies may allow a withdrawal of 10% of the total premium paid, whereas others may let you withdraw 20%. Moreover, insurers may have a capping on the number of withdrawals after which a partial withdrawal charge will be applicable. Certain policies may have a limit based on the value of the fund. In such cases, the fund’s value should be at least thrice the yearly premium after the partial withdrawal. 

  • Rules of withdrawal in case of top-ups 

If you have a top-up on your ULIP, the withdrawal amount will be adjusted from the insurer’s top-up value. If your top-up amount is still within the lock-in tenure of five years, the withdrawal sum will not be settled from this value.

 Important points to consider when withdrawing from a ULIP 

  • Ensure that you understand the types of ULIPs and the withdrawal rules associated with them 
  • Pay the premiums on time to prevent the policy’s termination and to benefit from partial withdrawal
  • Withdraw only after the lock-in tenure of five years
  • Make sure that you have enough funds to cover the account maintenance and fund management charges 

Partial withdrawal of funds from your ULIP can reduce the sum assured for two years right from the date of withdrawal. The life insurance sum will be restored to the original amount if you do not make any more withdrawals within two years. However, you can purchase additional units or include a rider (top-up) in your policy to increase the ULIP’s value. In the case of an equity fund, the ULIP performance is correlated to the market trend; the net asset value of ULIP will increase if the equity market is bullish and vice-versa. 

Investing in ULIP is a great option to secure your family’s financial future. Moreover, a fund with a good ULIP performance can help you meet long-term life goals, like children’s education, their wedding, or the requirement of finance to expand your business. Investing in the right ULIP for a long period can help your wealth grow with time.

Looking to upgrade your Ulip policy? Here is how to modify your Ulip policy.

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