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 –
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.