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Can I Surrender My ULIP Policy after 2 Years?

Yes! You can surrender a ULIP policy after 2 years. However, before planning to discontinue ULIP, you must research the lock-in period, the tax implications on surrender value.

  • 8,129 Views | Updated on: Jan 10, 2024

When you opt-in for a ULIP policy, the primary motive should be a long term investment. Unit linked insurance plans give you the benefit of both life insurance as well as an option to invest in the market in a single policy. Also, the longer you keep the money invested in plans like ULIPs, the better returns you will get. However, there are a lot of reasons behind people wanting to surrender ULIPs, and it is absolutely alright to surrender a policy if you have an unexpected financial emergency.

Before planning to discontinue ULIP, a policyholder must do their research about lock-in period, the tax implications on surrender value, and the consequences of surrendering the policy before the ULIP lock-in period.

This article will help you learn if a policyholder can surrender ULIPs after two years, whether they have to pay tax if they do not complete the ULIP lock-in period and other important details.

Can a Person Surrender ULIPs after Two Years?

Yes! A policyholder can surrender a policy as per his/her wishes. However, it is made clear while opting for the policy itself that it has a minimum lock-in period of 5-years. Therefore, surrendering ULIPs before completing maturity is not advised and will result in penalty charges and tax implications on surrender value.

So, experts highly advise that a policyholder must complete the tenure of a ULIP policy and serve the lock-in period to avoid penalties and taxes and reap the benefits of maturity of their ULIP policy.

Disadvantages of Surrendering ULIP policy Before 5-Year Lock-in Period

If you discontinue ULIP policy before completing the lock-in period of 5-years, it will have repercussions. Of course, if the policyholder, despite being aware that there is a mandatory five years lock-in period in ULIP, wishes to surrender the policy, he is free to do so. Following are the disadvantages of surrendering ULIPs before its mandatory 5-year policy tenure:

  • Even if the policy is surrendered before five years, the policyholder or the nominee will get the money only after 5-years. However, the policyholder will receive the money only after five years of tenure, not with the fund value calculated on the day of policy surrender.
  • Once you have surrendered the policy, certain discontinuation charges are first levied, and then the remaining amount of the fund value is moved to the Discontinued Policy (DP) fund.
  • When the fund is moved to the DP Fund, the insurer may levy an additional fund management charge. This amount cannot exceed 0.5% of the total DP fund value.
  • You will still get an interest of approximately 4% per annum on the DP fund as per the policy guidelines.

Tax implications on surrender value

Suppose you surrender a ULIP policy before the minimum lock-in period. In that case, the whole amount received will be calculated as income for the year the policyholder has received, and tax will be changed as per the tax slab they fall into after adjusting this fund to income for that particular, fiscal year.

In conclusion, you can surrender ULIPs before five years. But it is not advised to surrender the fund value on maturity, and other maturity benefits of ULIPs are a great deal.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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