ULIP, short for Unit-Linked Insurance Plan, is a unique financial product that offers both insurance and investment under a single plan. If you want to stay invested for a long period of time, ULIP plans provide the dual benefits of protection in the form of insurance and investment for long-term capital gains.
Here’s how investment in ULIPs works: you make an investment in a ULIP and a part of the amount so paid goes towards the investment in shares/bonds and the rest of the amount is utilized as premium towards an insurance cover. A ULIP plan provides you with the flexibility to switch your investment portfolio across equity and debt based on your risk appetite, so that is a bonus!
As is clear from the name, a lock-in period is a tenure for which you cannot get out of the ULIP investment. This means you cannot withdraw money before this period is over, you cannot avail your payouts before this period is over.
Initially, the lock-in period for a ULIP plan was 3 years, but this was recently increased from 3 to 5 years by the Insurance and Regulatory Development Authority of India (IRDAI) in 2010. Yet, even though you cannot withdraw the funds before the expiry of the lock-in period, you can still surrender the fund before hitting this time mark. If you surrender the plan prior, the insurance cover will cease to exist and you will receive the money only after the end of the 5 years.
Having said that, investors still have a lot to gain from being invested in a ULIP plan. Apart from the obvious factor of life insurance online, you have enormous flexibility in deciding the investment portfolio.
For example, you can get Unit Linked Insurance plans from Canara HSBC Oriental Bank of Commerce Life Insurance online to ensure a secure future for your family and fulfil your life goals. The Titanium Plus Plan, for instance, is a unit-linked insurance plan that provides you with remarkable flexibility over funds as well as full control over your investment.
Sometimes, you might face financial difficulty that makes you unable to pay the premium. Or you might realise that a ULIP doesn’t serve your financial goals. If you choose to stop paying your ULIP premiums before 3 or 5 years (of the usual lock-in period), you are presented with two options. You either revive the policy or you withdraw from the scheme without life insurance cover. Let us round up the consequences of this:
No penal measures: first things first, you would not be penalised for early withdrawal. Your ULIP provider will not charge any penalty if you are unable to keep up with the premium payments. The only catch is that you cannot withdraw the money before the lock-in period of 3 years (or 5 years as the case may be) has passed.
Loss: in case you stop paying the premium before even one year has elapsed, then you might end up losing the entire capital invested so far.
Notice: Once you have discontinued the premium payment, you will be served a notice within 15 days after the expiry of the grace period of the policy. This serves as an option to revive the policy. Within 30 days of getting the notice, you can convey to the company that you wish to keep the policy. The revival of the policy depends upon the payment of all the unpaid premiums and charges.
Final payout: If you are not reviving the policy but instead discontinuing it, you will receive the withdrawal amount only after the lock-in period. This amount, however, is not the complete fund value. Instead, it is treated to a lot of charges and deductions like fund management charges, annual charges and surrender charges.
Tax treatment: The surrender value and any tax deduction previously claimed against ULIP will be counted as part of the total income.
Remember that if you are unhappy with the performance of your ULIP investment, you can always make tweaks in the fund allocation. Exiting a ULIP plan means you will need to find a replacement in the form of life insurance online, a robust investment avenue as well as bear charges. Decide wisely!