One of the most popular investment options in India, ULIP or Unit Linked Insurance Plan is a financial product, i.e., known for its hybrid nature. It is primarily a life insurance plan that offers protection against the uncertainties of life and gives you the opportunity to invest in the money market and grow your capital in the long run.
When you purchased Unit-Linked Insurance Plan, the insurance company uses a specific part of the premium you pay for the policy to provide insurance coverage. The remaining amount is invested in different asset classes of your choice based on your financial goals and risk-taking capacity.
One of the significant features of ULIP is that it has a five-year lock-in period. This means you cannot withdraw the funds from your corpus for up to five years. This helps you in two ways. One, it inculcates the habit of regular savings. Two, it helps you keep investing and accumulate a decent corpus that you can use for your future goals.
If you think the lock-in period is a hindrance as you don’t have the flexibility to withdraw the funds, then you would be happy to know that IRDAI also allows partial withdrawal of funds.
Limitation of partial withdrawal
Typically, the insurance companies in India have no fixed limit on the amount you can withdraw from your ULIP plan. However, many financial experts and insurance advisors do not recommend using this facility. This is to ensure that there are always enough funds to cover the various ULIP costs. If there is not sufficient money in your corpus, then the insurer may terminate your policy, which means you risk not having life insurance coverage.
The number of times you can withdraw from your ULIP policy and the maximum amount you can withdraw may vary from one insurance company to another. Generally, most insurers allow withdrawing a maximum of 10% of the total premium at once, and that too after the lock-in period is over.
Make sure that you read the policy’s terms and conditions to know about other limitations on partial withdrawals.
Partial withdrawal before the lock-in period
Most insurers do not allow partial withdrawal of funds from the ULIP policy before the mandatory lock-in period ends. Even if you surrender the policy or discontinue it, the insurer will transfer the accumulated corpus to the discontinuation account and pay it only after five years after deducting certain charges, as applicable. During this period, the funds in the discontinuation account are subject to earn interest.
How does partial withdrawal affect the sum assured of the policy?
Every time you opt for a partial withdrawal from the ULIP plan, the sum assured decreases proportionately. Based on the terms and conditions of the policy, if you withdraw more than two years before the unfortunate demise, then your sum assured will remain intact, and your family member will receive the full amount.
Paying the premium is vital for partial withdrawals
As a ULIP policyholder, you can partially withdraw funds from your corpus after the lock-in period to meet your emergency needs. However, to be eligible to withdraw the funds, you must keep your policy active and pay the premium diligently on or before the due date.
If you have defaulted on the premium payment or if there has been a delay, then the insurance company reserves the right to disallow your request for partial withdrawal.
Final Word
Thus, partial withdrawal in ULIP is an excellent feature that helps you get immediate cash to meet the emergency needs. It is a much better option than taking a personal loan and paying high interest on it. However, it is advisable to avoid withdrawing the funds as it would affect your overall returns in the long run.
Also, it is better to stay invested in the ULIP for about 10-15 years to get good returns and build a sizeable corpus. Historically, ULIPs have provided returns in the range of 10-12% for an investment period of 12-15 years.
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