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Will You Need to Withdraw or Surrender Money From ULIP

Learn about what happens when you surrender your ULIP? Even though there is a lock-in period of 5 years in ULIPs, one may still surrender the policy. Read more to know about it.

  • 4,446 Views | Updated on: Jan 10, 2024

In recent years, ULIPs have established themselves as reliable long-term investment tools that provide high profits and returns on investment. A Unit Linked Insurance Plan is a combination of insurance and investment which is subject to a five-year lock-in period. It is one of the most interesting financial instruments available to investors. Unit-Linked Insurance Plans provide insurance coverage while also producing profits through investment sources in a manner similar to mutual funds. The insurance provider launches a new plan and encourages investors to participate - which means that ULIP plans invest in stocks, commodities, and debt instruments. Let us go over some details of ULIP plans to make these terms and conditions clear.

Surrendering ULIPs Before Lock-In Period

ULIPs have a five-year lock-in term, though it is possible to cancel the insurance. The money, on the other hand, will not be paid to the policyholder until the completion of the 5-year period. It’s worth noting that the amount paid after 5 years is not the fund’s actual worth on the day of surrender.

The leftover ULIP fund performance value is transferred to the Discontinued Policy (DP) fund after discontinuation charges are deducted. Until the conclusion of the lock-in term, your funds will stay in the DP fund. During this time, a fund management fee of up to 0.5 percent of the fund’s value may be paid. This fund can also generate interest at a rate of around 4 percent per year, ensuring a minimum guaranteed return.

Surrendering ULIPs After Lock-In Period

While there are no charges on exit fees after the lock-in period, surrendering your plan is not recommended. Staying invested for extended period of time, such as 15-20 years, allows you to profit from market regularization while also distributing mortality, fund management, administrative, and other expenses across the policy’s tenure. Unit cancellation or a reduction in the market value are used to cover the associated expenses. As a result of the larger deductions in the early years, the investment over the 5-year period is smaller than in the later years. Hence, abandoning the fund after the lock-in period reduces the investment value of the ULIP fund performance.

Reviving Surrendered ULIP Plan

Even if you surrender the scheme before the lock-in period is completed, you have the option to revive it within two years of surrender. The surrender costs levied before are returned to the DP fund value upon re-activation, and the outstanding ULIP premium and related charges are subtracted.

ULIPs and Withdrawal

Partial Withdrawal

The sum secured for your ULIP plan is only repaid to its original value after two years if you make a partial withdrawal. This is also contingent on you not withdrawing any further funds during this time. This means that if the withdrawal is made less than two years before the policyholder’s death, the death benefit will be reduced. After the age of 60, any partial withdrawals are subtracted from the death benefit.

To conclude, ULIPs are not only fantastic investment alternatives, but their simplicity of partial withdrawal and policy surrender also makes it simpler to manage one’s finances in the event of an unexpected need or emergency without any major loss. It definitely makes for a good investment!

- 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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