why-one-should-not-exit-ulips-after-the-end-of-lock-in-period

Why One Should Not Exit ULIPs after the End of Lock-in Period?

Exiting ULIPs after the lock‑in period may limit long‑term returns, tax benefits, and wealth‑building potential from continued investments.

Written by : Knowledge Centre Team

2026-03-02

905 Views

6 minutes read

Exit Pop Up

Live Life More Confidently

Get best insurance from our experts

Name is required Name should be Valid
Mobile Number is required Mobile Number should be Valid
DOB is required DOB should be Valid
Annual Income is required
Please tick to proceed further.

Thank you for your interest in our product. Our financial expert will connect with you shortly to help you choose the best plan.

A host of financial products are available in the market catering to people with different financial goals and return expectations. People looking to financially secure the future of their family in their absence opt for a term plan, while those seeking high returns invest in small-cap mutual funds. However, products like a unit-linked insurance plan are unique as they provide the protection of life insurance along with market-linked returns.

Unit Linked Insurance Plans ( ULIPs ) are a mix of investment and insurance. A part of the premium paid is used to provide insurance, while the balance is invested in stocks, bonds and other instruments. Even though ULIPs are an insurance product, many people consider it as an investment instrument. Earlier ULIPs had a minimum investment period for three years, but in 2010 the lock-in period was extended to five years by the Insurance and Development Authority of India. The ULIP offers no liquidity in the initial years as the policyholders are not allowed to withdraw the ULIP corpus before five years. Though one is permitted to exit a ULIP after the completion of the lock-in period, should you do it?

Exiting a ULIP immediately after the completion of the mandatory five-year period could be counterproductive for your financial goals. Withdrawing the accumulated amount after the lock-in period gets over can affect the returns and subsequently your financial goals.

Loss of Compounding Benefits

ULIPs are long-term products and give optimum returns only in the long run. ULIPs invest in funds ranging from equity to debt. If your investment is put into equity, withdrawal in such a short time would lead to subdued returns. Early withdrawal will neutralise the benefits of compounding. In the case of compounding, the corpus grows at a faster pace in the later years. For understanding's sake, let us consider a base amount of Rs 1 lakh invested with an interest rate of 8%. The investment will generate an annual interest of Rs 10, 884 in five years, but the annual interest will jump to Rs 23, 500 in fifteen years. It is amply clear that if you exit a ULIP in just five years, you will let go of the benefits of compounding.

  • Impact of market cycles: ULIPs invest in a variety of funds ranging from equity to debt. Equity markets are known to be volatile in the short term but generally perform better than other assets in the long run. Investing for the long term also takes care of market cycles. While withdrawing after five years, you may get trapped in a market downcycle and get sub-par returns. On the other hand, by exiting during a bull run in the markets you will lose a substantial level of capital appreciation. Long-term investments paper over the volatility of market cycles and give relatively consistent returns.
  • Front-loading of charges: Another major factor for not exiting a ULIP after five years is the front-loading of charges. ULIPs generally levy most of the charges such as premium allocation charges, fund allocation charges, fund management fee and policy administration fees in the initial years. Some of the charges are deducted by cancelling the units or adjusting the NAV (Net Asset Value) of the funds.

    The charges are high in the first year but reduce with time. The charges become almost negligible in the fifth year. By exiting a ULIPs just after the completion of the lock-in period, you would leave an opportunity for rapid capital growth. Besides the various charges, withdrawing in five years would mean foregoing loyalty additions. The loyalty additions are paid at maturity of the ULIP along with the accumulated fund. The impact of loyalty additions varies from insurer to insurer, but it can give a substantial boost to the corpus.
     

Conclusion

There are various ways in which you will lose out on potential benefits by exiting a ULIP after the block-in period. Most people make investment decisions according to an investment plan. The investment plan is formulated taking into account the financial goals. When you exit a ULIP policy with lower returns, you reduce your chances of achieving the financial goals. With the Promise4Growth Plus ULIP from Canara HSBC, you can easily achieve your financial goals. The Promise4Growth Plus plan provides an option of 7 investment funds and four portfolio management strategies to improve returns.

Get a Personalised ULIP Plan for Wealth Creation & Protection

Please enter correct name Please enter the Full name
Please enter valid mobile number Please enter Mobile Number
Please enter valid email Please enter Email
Consent is required

Enter OTP

An OTP has been sent to your mobile number

Didn’t receive OTP?

Application Status

Name

Date of Birth

Plan Name

Status

Unclaimed Amount of the Policyholder as on

Name of the policy holder

Policy Holder Name

Policy No.

Policy Number

Address of the Policyholder as per records

Address

Unclaimed Amount

Unclaimed Amount
Error

Sorry ! No records Found

.  Please use this ID for all future communications regarding this concern.

Request Registered

Thank You for submitting the response, will get back with you.

Thank You for submitting the response, will get back with you.

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.

Recent Blogs

How LTCG Tax Impacts ULIP Investments and Returns?
25 Mar '26
71 Views
7 minute read
Learn how LTCG tax affects ULIP investments, including taxation rules, returns impact and key considerations for long-term financial planning.
Read More
Ulip
What Does Sum Assured Mean in ULIP Plans?
02 Mar '26
2003 Views
7 minute read
Planning to buy a ULIP but worried over the sum assured? Here is what exactly the term means and how you can calculate it.
Read More
Ulip
ULIP Investment Plans for Women and Single Mothers
02 Mar '26
1087 Views
5 minute read
ULIP instruments offered by Canara HSBC Life Insurance, are the best instrument for women and especially single mothers who want to help their children achieve their long-term dreams.
Read More
Ulip
6 Best One Time Investment Plans in India
28 Feb '26
1218 Views
12 minute read
One-time Investment Plan - Check the best one-time investment plans to achieve your financial goals in 2026.
Read More
Ulip
How Long Should be the Term of Your ULIP Plan in India?
25 Feb '26
939 Views
6 minute read
Determine the ideal term for your ULIP plan to maximize returns, achieve financial goals, and enjoy tax-saving benefits.
Read More
Ulip
What Is ULIP & Why Do People Invest in It?
18 Feb '26
920 Views
7 minute read
Understand ULIPs, how they work, their benefits, charges, tax rules, and why investors choose ULIPs for long-term wealth creation.
Read More
Ulip
Do You Still Need a Retirement Plan Along with a ULIP?
15 Feb '26
899 Views
6 minute read
Learn whether a dedicated retirement plan is necessary if you have a ULIP, considering factors like long-term income goals, risk exposure, diversification, and financial security.
Read More
Ulip
Understanding ULIP Premiums: Your Key to Smart Investing
15 Feb '26
894 Views
6 minute read
The premiums you pay towards your ULIP policy are a crucial component. Here’s a primer on all the terms and conditions associated with your ULIP premiums.
Read More
Ulip
5 Common ULIP Buying Mistakes You Must Avoid
12 Feb '26
1086 Views
5 minute read
ULIPs have emerged as an investment instrument that comes with dual benefits of insurance and investment. You also have the flexibility to fine-tune your returns with your risk appetite.
Read More
Ulip