Unit-Linked Insurance Plan (ULIP) is a dual investment product. It offers insurance coverage and invests in funds that help grow your wealth. When you invest in a ULIP, you need to consider the ULIP NAV and remain invested for the lock-in period. If you choose to discontinue a plan, there are certain rules you need to know.
When can you withdraw your money?
ULIP has a lock-in period of five years and this means you cannot withdraw the money for the first five years. However, if you are in urgent need for money, you can choose to discontinue the policy by not paying the premiums. When you opt for this option, the insurer will give you a window of 75 days at the end of which the policy will be declared as lapsed and it will move to the discontinuance fund. When the fund is discontinued, the insurer will levy a charge, which is a maximum of INR 6,000 in case you discontinue the fund in the first year. Now if you choose to discontinue the fund in the fourth year, there will be a charge of INR 2,000 and after the fourth year, there are no charges applicable.
What is the discontinuance fund?
The purpose of the fund is to hold your money from this policy until the lock-in period ends and pay some amount of interest on it. An insurer cannot levy any other ULIP charges except for a fund management charge and this cannot exceed 50 basis points on the annual value of the fund until the lock-in period ends. When you get a window of 75 days, there are three options for you to opt for. One is to pay the premium, another is to withdraw the policy completely, and the third is to let the policy lapse.
What happens at the end of the lock-in period?
At the time of complete withdrawal of theULIPpolicy,the proceeds from the fund will come to you at the end of the lock-in period. However, if you do not choose any option and allow the policy to lapse, you can get a limit of two years to revive the policy. If the policy lapses in the fifth year, then you will only have one year to revive it after which the proceeds from the fund will be paid to you at the end of the fifth year.However, the rules have changed and there is now a two-year window for revival, no matter when the lock-in period ends. This means even if you lapse the policy at the start of the fifth year, you can revive it during the sixth year, which is after the lock-in period ends. Many insurers were holding payments after the lock-in period was over to enable the policyholders to revive the policy in two years. As per the new regulations, if the policyholders do not wish to revive the policy during the lock-in period, the money will have to be paid to them after the lock-in period is over.
Should I discontinue a ULIP or not?
It is advisable to continue your chosen policy and not let it lapse. You should carefully research and select the best ULIP plan for yourself and take it to term.When you remain invested for a longer duration, the impact of market volatility reduces. In addition, you can enjoy tax benefits with your investment in ULIP. Unless there is an emergency, it is best to continue your ULIP and not withdraw the policy.