Withdrawing Funds From ULIPs Before Maturity

Ever wondered how investment in unit-linked insurance plans (ULIP) can provide you with the benefits of both wealth creation and life cover? The ULIP plans have gained popularity due to its unique combination of insurance and investment features. However, many people still find a ULIP investment plan complex and are unsure about how withdrawals work in these plans. In this article, you will demystify the process of withdrawing from a ULIP, so you can make informed decisions about managing your investments.

What Is a ULIP?

Before diving into the intricacies of withdrawals, you must understand what is a ULIP. A ULIP is a financial product that offers dual benefits — life insurance coverage along with the opportunity to invest in various market-linked funds. The premium paid towards a ULIP investment is divided into two parts: one for life insurance coverage and the other for investment in funds of your choice.

Here is how withdrawals work in ULIPs, allowing you to access your invested amount when needed:

Withdrawing Before 5 Years: The Lock-In Period

ULIPs come with a mandatory lock-in period of 5 years. During this period, if you decide to withdraw either a partial or full amount or surrender the policy altogether, you will only be able to receive the funds accumulated after completing 5 years of your ULIP investment. It is important to note that if you choose to discontinue premium payment before completing 5 years, your ULIP life cover becomes null and void.

Additionally, when withdrawing before completing 5 years, your maturity amount moves into a discontinuance fund where charges are levied. Therefore, it is generally advisable to avoid withdrawing from your ULIP during this period unless there is an unavoidable financial emergency.

Withdrawing After 5 Years: Partial Withdrawals

Once your ULIP investment crosses the lock-in period of 5 years, you have the flexibility to make partial withdrawals from your accumulated funds. This feature can be useful in times of financial emergencies, allowing you to avoid breaking a fixed deposit or taking a loan.

However, it is important to understand the terms and conditions applicable to withdrawals based on your specific policy. Some key points to consider are:

Limit on Withdrawal: Every insurer has different withdrawal limits in place. While some may allow you to withdraw up to 10% of the premium paid, others may permit up to 20%. The maximum withdrawal amount may also be based on the remaining fund value post-withdrawal. Once you reach the maximum limit, additional withdrawals may attract charges.

Withdrawal Rules for Top-Ups: If you have made top-up investments in your ULIP policy and decide to withdraw an amount, it will first be settled from the top-up amount if it has completed 5 years. Otherwise, the withdrawal will not be settled from the top-up you paid.

Things to Keep in Mind When Withdrawing from a ULIP

When planning to withdraw from your ULIP investment, keep the following points in mind:

Understand the Withdrawal Rules: Carefully go through your ULIP policy documents to understand the specific withdrawal rules applicable to your plan. Familiarise yourself with limits, charges, and any additional terms and conditions related to withdrawals.

Timely Premium Payments: Ensure you pay your premiums regularly and on time to avoid policy termination and enjoy the benefits of partial withdrawals when required.

Five-Year Premium Payment Period: To be eligible for withdrawals after completing the lock-in period, ensure you have paid premiums for at least five years since purchasing the policy.

Account for Costs: While planning for withdrawals, ensure that you leave enough funds in your ULIP account to cover the cost of your initial investment and ongoing account maintenance charges.

Impact on Sum Assured: Keep in mind that making partial withdrawals from your ULIP can lead to a reduction in the sum assured for two years from the date of withdrawal. However, after this period, if no further withdrawals are made, the sum assured can be restored to its original value.

Maximising Your ULIP Investment

To maximise the growth of your ULIP investment, consider the following strategies:

Top-Up Premiums: If you have surplus funds, consider topping up your premium amount. By purchasing more units during favourable market conditions, you can potentially restore the money withdrawn to its original value.

Customisation: Opt for ULIP plans that allow customisation based on your requirements. For example,

Regular Savings: Save regularly with ULIP investments to ensure steady growth over time and meet your financial goals for yourself and your family.

Conclusion

Understanding how withdrawals work in ULIP investment is crucial for effective financial planning. Remember that while partial withdrawals can help during emergencies, it is advisable to avoid withdrawing before completing the lock-in period of 5 years. You can maximise the growth potential of your ULIP investment and secure a financially sound future for yourself and your loved ones by making informed decisions about withdrawals and utilising top-up premiums wisely.