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How does withdrawals work in ULIP?

How does withdrawals work in ULIP?

withdrawals work in ULIP

The Insurance Regulatory Authority of India (IRDAI) in April this year allowed ULIP policyholders to receive their maturity amount in staggered instalments over the next 5 years. This unprecedented move was announced for policies with a maturity date on or before May 31 2020 keeping in mind the depreciation in fund value of the ULIP investment in the light of market volatility due to Covid-19. Long term investors who had purchased ULIPs 10-15 years back and were keen to make withdrawals due to a financial emergency would have had to take home an eroded maturity value, in the absence of this intervention.

However, with markets recovering from previous lows, postponing withdrawals by choosing instalments as per your comfort level can help you get better returns on your money and save you from booking a loss. This flexibility offered by a ULIP along with the benefit of choosing life insurance online as per your requirements is what sets this investment option apart. Here are a few other withdrawal choices available to you when you invest in a ULIP:

1. Withdrawing before 5 years: As a principle, every ULIP comes with a 5 year lock-in period. If you withdraw a partial amount or want to take the entire amount invested by surrendering the policy altogether, or discontinue premium payment, you will only be able to receive the funds accumulated after your ULIP investment completes 5 years. Not only this, the maturity amount moves into a discontinuance fund and consequent charges are levied. You also have to repurchase life insurance online since your ULIP life cover becomes null and void.

2. Withdrawing after 5 years: It is advisable to make partial withdrawals from your ULIP investment once it crosses the lock-in period. This feature can help you tide over a financial emergency by avoiding breaking a fixed deposit to fund your needs or taking a loan. However, certain terms and conditions are applicable on withdrawals depending on the fine print of your policy document. Some of these include:

  • Limit on withdrawal: If you withdraw a huge amount from the ULIP, you are liable to face termination of your life cover. Withdrawal limits may differ from one insurer to another. Some allow you to take 10% of the premium paid, for others it may be 20%. The limit could also be based on the remaining fund value post withdrawal. The number of withdrawals might also be capped after which withdrawal charges are levied.
  • Withdrawal rules in case of top-ups: If you have made a top-up investment to your policy and are withdrawing an amount, the insurer will settle it from the top-up amount. The withdrawal amount is not settled from the top-up paid by you if it hasn’t completed 5 years.

Things to keep in mind when withdrawing from a ULIP

  • Make sure to understand the withdrawal rules of the ULIP that you purchase together with life insurance online.
  • Remember to pay your premium on or before the due date to avoid policy termination and enjoy partial withdrawals.
  • Withdraw only after paying premiums regularly for 5 years since policy purchase.
  • Leave enough to cover the cost of your ULIP investment and account maintenance.

Partial withdrawals can lead to a reduction in sum assured for two years from the time the money is withdrawn. Post this period, the sum assured of your life insurance online as on the date of purchase of ULIP is restored provided you do not withdraw any money in these two years. Therefore, you should withdraw from your ULIP only in the case of an emergency situation.

However, to increase the fund value of your ULIP investment you can top-up your premium amount and purchase more units. An increase in the NAV of the fund invested in due to favorable market conditions can restore the money withdrawn to its original value. So use the option to withdraw from a ULIP wisely to get the most out of your investment.

Take for instance the Invest 4G plan from Canara HSBC Oriental Bank of Commerce Life Insurance which allows you to grow your wealth by investing your money across 7 different funds. Partial withdrawals are also allowed keeping in mind the financial needs of your family.

Not only this, you can customize your ULIP by opting for death benefits, premium payment and maturity benefits as per your requirements .Give your family a financial future they deserve by investing in a ULIP today. Save regularly and see your money grow with time to help you meet those cherished goals you have for yourself and your loved ones.

Speak to an insurance specialist now!

FAQs

In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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