As most of you know, the Unit Linked Insurance Plans (ULIPs) combine the benefits of a life insurance plan along with investments. It gives you the liberty to invest in funds of your choice. You can also withdraw a lump sum amount when needed, thus making the policy flexible.
In this article, we will be discussing in detail the withdrawal conditions for ULIP plans. Let us begin by understanding the types of ULIP withdrawal and how withdrawals work in ULIP.
Only recently, the Insurance Regulatory Authority of India (IRDAI) has allowed ULIP policyholders to get their maturity amount in staggered instalments over the next 5 years. This move was done for the policies that come with a maturity date on or before May 31, 2020. It was done after keeping in mind the depreciation in fund value of your ULIP investment in the light of market volatility because of the pandemic. Those long term investors who had invested in ULIPs 10-15 years ago were keen to make a withdrawal because of any financial emergency. They would have had to get an eroded maturity value in the absence of this intervention.
Here is a look at the different types of ULIP withdrawals available.
It is noteworthy that partial withdrawals before the policy lock-in period are not possible. Here, even if you plan to surrender or discontinue your ULIP policy, you will receive the money after the lock-in period ends.
You can avail the partial withdrawal facility only after the five-year lock-in period ends. But to avail this ULIP withdrawal after 5 years feature, here are a few things that you need to take into consideration.
Have you made any top-up payments towards your ULIP plan? If yes, then the insurer will settle the withdrawal amount from the top-up amount at first.
If you have made no top-up payments, then the amount utilised for withdrawal comes from the base fund value.
If your top-up amount has not completed the five-year lock-in period, then the amount used for withdrawal comes from the base fund.
On the other hand, if you (the investor) is a minor, then the partial withdrawal can be made only after they are 18 years of age or above.
Generally, people are worried about the impact of ULIP partial withdrawal on life insurance coverage. You might be too. Whether the partial withdrawal facility reduces the sum assured amount upon your death, is a question that most of you may have by now.
Let us tell you this. This is entirely dependent on the amount you withdraw from the two-year term before your demise. In that case, the partial withdrawal feature will decrease the sum assured for life insurance.
However, if the withdrawal was made more than two years ago, then the sum assured amount will be unaffected.
The amount of money that you can withdraw has no such limit. However, as a smart investor, you should leave enough funds that will help you cover the cost of the ULIP plan. You cannot withdraw the whole amount or too much of the amount as it will lead to the policy termination.
For this purpose, every insurer has imposed a limit on the amount to be withdrawn. This limit varies across investors and different ULIP plans. A standard ULIP plan will allow you to withdraw up to 10% of the total premiums paid. However, certain standard plans will enable you to withdraw 20% of the total premiums paid. Note that withdrawal facility is possible only after the five-year lock-in period is over.
Certain policies have a limit based on the fund value. For instance, the fund value after the partial withdrawal should be at least three times the annual premium amount paid. Other policies may impose that post withdrawal, the fund value should be at least the same as the value of one year of premium paid. Some insurers have a cap on the minimum amount that you can withdraw from the ULIP plan.
You should also be aware of the limit imposed on the number of withdrawals. This is basically the number of times you can withdraw money from your ULIP plan. Again, this limit is different for different policies and insurers. In some cases, you are allowed to make partial withdrawals only after a three months interval period.
Before withdrawing from ULIP, there are certain important things that you should keep in mind. Here is a look at them.
Before you do a withdrawal in ULIP, make sure you understand all the rules related to the same.
To avoid policy termination and continue to enjoy partial withdrawal in ULIP, you must pay the premium on time.
After purchasing the policy make sure you do ULIP withdrawal after 5 years only after paying premiums regularly.
You should also leave enough to cover the cost of your ULIP investment and maintenance of the account.
You should do ULIP withdrawal only in case of an emergency situation. This is because a partial withdrawal can lead to the reduction of assured sum for two years from the time the money is withdrawn.
To continue to enjoy the partial withdrawal facility in your ULIP plan, keep paying the premiums on time. If you miss out on the premiums, it will impact your ULIP benefits and restrict you from using the partial withdrawal features. If you want to opt for ULIP as an investment, get in touch with us at Bajaj Markets and explore Bajaj Allianz Life’s different ULIP plans. With the ULIPs available on our platform, you can take advantage of dual benefits, build your wealth over time and gain tax benefits, while protecting yourself and your loved ones. So, don’t wait. Invest in a ULIP plan with us today!
No, partial withdrawal in ULIP before the 5-year lock-in period is not possible.
Yes, there is a certain limit on the amount that can be withdrawn. It differs from one insurer to another.
Yes, you can do ULIP withdrawal after a 5 years lock-in period.
No, the amount received under the life insurance policy including the ULIP plan is exempt from income tax under Section 10(10D) of the Income Tax Act.
Even though a ULIP comes with a lock-in period of five years, you can surrender your plan before that. However, the money will be paid to you after 5 years.