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Nowadays, life insurance plans offer more than just life cover. They include benefits like retirement planning and savings for life goals. A Unit-linked Insurance Plan (ULIP) is one such example. It offers life cover and lets you invest in market-linked funds.


ULIPs come with a lock-in period of five years. During this period, you will not be able to withdraw the invested funds. This lock-in period encourages disciplined savings. It also helps in building a substantial corpus over time. You can find out more about this in the following sections.

ULIP Lock-in Period Explained

A lock-in period in insurance is the duration over which you cannot liquidate the fund value. ULIPs generally have a lock-in period of five years. So, you must wait to liquidate your investments and/or withdraw the fund value before the policy ends.


Prior to 2010, this lock-in period in ULIPs was set at three years. However, in 2010, the ULIP lock-in period was increased to five years. This was done by the Insurance Regulatory and Development Authority of India (IRDAI).

Reasons to Not Exit Immediately After the Lock-in Period for ULIP Ends

Once the lock-in period ends, you can withdraw your investments from your ULIP funds.  However, this may not be the most financially sound move. There are many reasons to remain invested even after the lock-in period comes to an end. These are:

  • Front-loaded Charges

There are many charges levied for ULIPs. Some examples include premium allocation charges, fund allocation charges, and fund management fees. These are primarily front-loaded.

This means that the ULIP charges tend to be higher in the initial years. So, the net returns during the initial five years may be lower on account of higher ULIP charges. However, over time, the charges tend to reduce, leading to better net returns. You can recover the initial costs by remaining invested beyond the lock-in period.

  • Market Cycles

Unit Linked Insurance Plans invest in both equity and debt markets. Equity tends to be volatile over the short term. However, over the long term, the equity market generally performs better than many assets. Investing for the long term may help manage market cycles. If you withdraw after five years, you might hit a market downturn and get lower returns. 


Conversely, exiting during high growth might mean missing out on further capital appreciation. Long-term investments smooth out market volatility and offer more consistent returns.

  • Compounding Benefit

By remaining invested beyond the five-year lock-in period, you can also benefit from the power of compounding. It also delivers its best results the longer you remain invested. This could help increase your returns significantly over time. So, it may not be a good idea to withdraw your funds right after the lock-in period for ULIPs.

Discontinuing your ULIP Before the Lock-in Period Ends

Although not advisable, it is possible to discontinue your ULIP before the lock-in period ends. Here is what happens if you choose to do this:

  • Your insurer will levy the surrender charges or the discontinuance charges. This will be done as per the terms and conditions of your ULIP.

  • The money will be returned to you only after the lock-in period of 5 years is complete

  • In the meantime, the fund value is transferred to a separate fund. This is called Discontinued Policy (DP) fund.

  • The money in the DP fund earns interest. This is done at the minimum rate of 4% per annum till the lock-in period ends.

  • At the end of the lock-in period, the money is transferred to you.


The lock-in period can be a useful feature of ULIPs. It could be a good idea to stay invested long-term. This may help you reap the rewards of market-linked investments. If you are searching for the right ULIP, you can continue browsing through Bajaj Markets. Here, you can compare and choose from many ULIPs based on your needs.


Keep the lock-in period for ULIPs in mind before making a purchase. Moreover, consider staying invested for as long as possible.

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