What is Lock-In Period in ULIPs?
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What is Lock-In Period in ULIPs?

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  • 28th Feb 2022
  • 251

What is Lock-In Period in ULIPs?

The number of people venturing into the realm of investment has increased at an unprecedented rate. People have begun to gravitate toward investment options that provide high returns and encourage asset growth as they become more aware that a good financial portfolio is a combination of savings, income, and investment.

ULIP fund investments have been on the rise, and if you have invested in a ULIP scheme or plan to do so, one subject that may come up for discussion is the ULIP lock-in period.

To provide you with more clarity, we will go over the lock-in duration of the ULIP policy in depth in this article.

All About The ULIP Lock-In Period

The uniqueness of ULIP, or unit-linked insurance plans, is that they combine investing and insurance into one package. Because of the combination of financial stability, market investment, and tax savings, this life insurance policy is often regarded as the most balanced and sought-after plan.

The ULIP lock-in period refers to the time period during which you are unable to withdraw your investment. ULIPs typically have a five-year lock-in term. If you wish to withdraw your investment before the lock-in period, you will be required to pay surrender fees. However, you will be able to surrender the insurance without incurring any penalties after the lock-in term has ended. Because ULIP funds are designed to help you achieve long-term financial objectives, it’s preferable to avoid taking money out until it’s really required.

Lock-In Period in ULIPs - Key Aspects of ULIP Lock-In Period

Key Aspects of the Lock-In Period

  • Withdrawal Option in ULIPs

Most ULIPs do not allow partial withdrawals until the five-year lock-in period is up. After the ULIP lock-in period has ended, partial withdrawals can be made at any time. While certain schemes allow for free unlimited partial withdrawals after the lock-in period, some other options enable policyholders to withdraw a specified amount each month for the duration of the policy. Certain ULIP schemes enable partial withdrawals after three years of plan eligibility. Most withdrawals, nevertheless, are subject to fees, depending on the plan purchased.

  • Surrendering or Discontinuing Before The ULIP Lock-In Period

If the ULIP is terminated or surrendered before the end of the five-year period, the ULIP funds value is transferred to a discontinued policies fund, commonly referred to as the DP fund. According to the terms and conditions of the ULIP policy, surrender or discontinuance costs may also be levied.

In addition, the money is only returned to the plan holder when the lock-in period has finished. Money in the DP fund gets a minimum of 4% interest rate until the end of the lock-in period. This interest rate may change based on the regulating authorities’ regulation framework. In addition, the DP fund amount is distributed to the nominee in the case of the policyholder’s death during the lock-in term of ULIP.

If a policyholder renounces their policy after the lock-in term, they will be reimbursed the fund value at the current net asset value or NAV. Discontinuation fees are not applicable in these situations.

To summarize, ULIPs are a terrific option if you want life insurance and outstanding investment returns, but you must be willing to make a long-term commitment to the plan in order to reap the most rewards. All you need to do is understand the basics, learn about the terms and conditions, deductions and exemptions and make a well-thought-of decision.

- A Consumer Education Initiative series by Kotak Life

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