What Happens If You Stop Your Ulip Premiums Before 3 Years

What Happens If You Discontinued Your ULIP Premiums Before 5 Years?

If you stop paying your premiums before five years, your policy will be discontinued. Find out more about discontinuing your ULIP policy here.

2022-06-05

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7 minutes read

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As an investor, there may be times when you might face financial difficulty in paying the premium under a ULIP. Moreover, there may be instances wherein you may realize that a ULIP plan doesn’t align with your financial goals. Whatever the case may be, if you choose to discontinue the payment of premium towards your ULIP plan before the mandatory 5-year lock-in period, or anytime within the premium payment tenure, the following things may happen –

No Penalty Charged- If you choose to stop paying the premium, you will not incur any penalties for doing so. Your insurance provider will not levy any financial penalty or otherwise if you are not able to keep up with the premium payments. In case you decide to stop paying the premium within the 5-year lock-in period; however, you cannot withdraw any money before the period completes.

Loss of Capital-  Another thing that may happen if you stop with the premium payments is capital erosion. You may incur a loss on the money that you have invested in the ULIP till date.

Pre-dated NAV -  In case you decide to stop paying the premium within the lock-in period and withdraw the accumulated amount after the completion of five years, you will not receive the payouts based on the fund’s Net Asset Value in the current year. Instead, the money you would receive will be calculated based on the funds’ NAV for the year in which you discontinued the premium payments.

Deduction of ULIP Charges -  If you discontinue the premium payments after the first year of buying the ULIP or within the lock-in period, the insurance company will levy the pre-specified charges on the amount invested. The insurer may deduct charges such as fund management charges and fund allocation charges from the money you have had invested. Also, if you decide to surrender the ULIP, additional surrender charges may be deducted from the invested amount. Subsequently, the amount you receive after the lock-in period may be much lesser than what you had invested.

Lapse of Life Insurance Cover - The life insurance cover under the ULIP plan may cease to exist as soon as you decide to discontinue paying the premium. Thus, there will be no life cover, meaning that you and your loved ones will be left without any insurance protection.

Overall, if you are unhappy with your ULIP plan’s performance, it is advisable to make tweaks in the fund allocation to maximize your returns, instead of discontinuing the premium payments or surrendering the plan. Otherwise, you may have to incur a significant loss on the money previously invested, while losing out on the life insurance protection as well.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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FAQs related to ULIP Discontinuance

If you discontinue your ULIP, the insurance company will reimburse the proceeds of the discontinued policy at the end of the lock-in period.

If you decide to close your ULIP before maturity, the insurance company deducts a discontinuance fee from your total amount and moves the rest to a Discontinuance fund.

ULIPs have a mandatory lock-in period of 5 years.

Discontinuance charges in ULIPs are fees that are deducted as a percentage of the total ULIP in case you decide to stop your premium payments before the lock-in period. 

If you don’t pay the ULIP premium after one year, the value you invest into the ULIP will be transferred to a discontinued policy fund.

If the ULIP policy lapses, the ULIP funds will be transferred to a discontinued policy fund. The investor will be provided a revival period of 3 years to revive the ULIP.