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Partial Withdrawal Of ULIPs: All You Need To Know?

Partial Withdrawal Of ULIPs: All You Need To Know?

Partial Withdrawals in ULIPs

Often considered among the most prudent financial instruments available today, the unit-linked insurance plans or ULIPs offer the unique advantage of life insurance protection and wealth appreciation through investments – all under the same plan. Essentially, ULIPs have a lock-in period of five years, while your money is invested in various market-linked fund options of varying degrees of risks. One of the several advantages of ULIP investments is the availability of partial withdrawals, wherein you can easily withdraw money from the acumuated fund value to take care of any urgent requirement. After the completion of the lock-in period, you can make partial withdrawals. However, this flexibility that ULIPs offer comes with a few terms and conditions.

Limits on Partial Withdrawal

Typically, there is no fixed limit on the amount which you can withdraw from your active ULIP policy. However, it is advisable that you do not overuse this facility so much that there are not enough funds left to help cover the ULIP cost. Otherwise, it could lead to policy termination. The limits of partial withdrawals of ULIPS may vary from one insurer to another. Usually, you can make withdrawals of up to 10 percent of the total amount of premium paid, but only after completing the mandatory lock-in period. Also, the incusrance company may introduce other limitations such as those on the minimum amount or the number of partial withdrawals made in a year. Therefore, you must go through the policy document of your ULIP plan to know more about these terms and conditions, while making sure that you keep paying the premiums on time.

Making Partial Withdrawals Before the Completion of the Lock-in Period

There is no provision under ULIPs to make partial withdrawals before the end of the mandatory lock-in period of five years. Even if you decide to surrender or discontinue the ULIP policy during the lock-in period, you can expect to receive the money (after deduction of surrender and policy discontinuation charges, as applicable) only after completing the five-year period.

Making Partial Withdrawals after the Lock-in Period

As the policyholder, you are eligible to make partial withdrawals after the lock-in period is over. There are, however, specific points that you need to consider before making any withdrawals from the accumulated funds. You cannot withdraw the entire accumulated fund amount before maturity, or without surrendering or discontinuing the policy. If you have purchased the ULIP plan for your child, who is a minor, he or she can make partial withdrawals from the policy only after turning 18.

Effect of Partial Withdrawal on Life Cover

There are chances that you might worry about if there would be any effects of making withdrawals on your insurance coverage? Usually, every partial withdrawal you make leads to a decrease in the sum assured under the ULIP life coverage. In case you have made the withdrawal more than two years before the unfortunate demise of the policyholder, there will be no effect on the sum assured. Here, you must go through the policy document to learn about how partial withdrawals work for your chosen plan coverage.

Regular Payment of Premium is Crucial

To avail of the several benefits of the ULIP plan, including partial withdrawal facility, it is essential that you always pay the premiums as per schedule, keeping the policy active without any interruptions. In case there are any lapses, suspensions or disputes in payment of premiums, the insurance company may disallow further partial withdrawals.

The amount withdrawn after completing the lock-in period is tax-exempt; thus, you can fulfill your immediate life goals with the accumulated funds under ULIP without any tax implications. However, you must adhere to the maximum number of partial withdrawals that you can make in a year, as specified in your policy underwriting so that you can avail of maximum benefit from your ULIP investment.

The Invest 4G plan from Canara HSBC Oriental Bank of Commerce Life Insurance allows you to maximize your accumulated wealth by investing your savings across seven different fund options. At the same time, you can make partial withdrawals to fulfill your family’s immediate financial needs. Furthermore, the Invest 4G enables you to customize your ULIP coverage by selecting death benefits, premium payment, and maturity benefits based on your requirements.

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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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