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Keywords: How to cancel ULIP policy
We all are aware of the fact that the Unit Linked Insurance Policy, popularly known as ULIP, is among the most famous modern insurance policies in India today. The ULIP policies offer a policyholder the benefit of insurance and market-linked investment in one policy. However, there can be situations when an investor may want to surrender their policy due to uncertain reasons like emergencies, financial issues, etc.
Since, ideally, ULIPs are considered investment plans for the long-term, it is not a wise decision to surrender your ULIP policy before it reaches maturity. However, if you have made up your mind to surrender the ULIP policy, let’s understand How to cancel ULIP policy.
In this article, before we discuss how to cancel ULIP policy, let’s understand when is the best time to surrender a ULIP policy, the charges involved in canceling a ULIP policy, and how to minimize the loss (If any) when doing so.
If you plan to cancel a ULIP policy, you must do it within 15-30 days of buying it. This is because different insurers offer different free look periods. So, you must check for this feature while buying the policy if you are not very confident about investing in ULIP. On the other hand, a free look period is a great option to opt out of the policy simply.
Alternatively, a ULIP plan has a minimum lock-in period of 5-years; surrendering a policy before this duration can incur losses in terms of different types of charges as per the policy guidelines. Also, you may have to pay taxes on the amount you will receive after surrendering the policy, as it will be considered an income.
So, financial advisors suggest that you surrender your ULIP policy only after it has crossed its minimum lock-in tenure. But, again, we would like to reiterate that it’s best to let your ULIP policy mature and then withdraw it for the best results.
When you cancel a ULIP policy, depending on the current policy year, you must pay some charges. These charges are called discontinuation charges, and the company levies them as a fine to manage its losses due to discontinuation.
For example, if you own a ULIP policy and pay a premium of more than ₹25,000 annually. In that case, the discontinuation charges that will be levied can be as much as ₹6,000, ₹5,000, ₹4,000, and ₹2,000, respectively, for the 1st, 2nd, 3rd, 4th policy year. On the other hand, if the premium amount is below ₹25,000, then the discontinuation charges levied by the insurance company can be ₹3,000, ₹2,000, ₹1,500, and ₹1,000, respectively for the 1st, 2nd, 3rd, 4th policy year. However, these charges can change based on the policy documents, guidelines, and your insurance company’s policies related to surrendering ULIP policy.
Although, as mentioned above, if you surrender the ULIP policy after five years, the insurance company will levy no such charges.
To cancel any ULIP policy, all you have to do is inform your agent or visit your insurance provider’s office and inform the executives there that you want to discontinue the policy. You can do it online too.
Here are the steps to cancel a ULIP policy:
1. Visit the insurance provider’s office.
2. Keep your policy documents and identification (KYC) documents ready with you.
3. Make sure you carry your bank documents like passbook and cheque book with you.
4. When you inform the executive at the office about canceling your policy, they will provide you with a surrender form. Alternatively, you can fill out this form online too.
5. You can fill out the form and submit all the required documents when prompted.
6. Once the team verifies all the documents, they will initiate the surrender procedure and do all the required calculations and deductions.
7. Once all calculations and deductions have been made, your money will be transferred to the Discontinued Policy (DP) Fund.
8. You can collect your money post-completion of the lock-in period.
It is essential to understand that canceling your ULIP policy will only result in losses if your free look-back period is over and your policy is younger than five years. Therefore, it is suggested that you do not surrender your policy unless you genuinely need it. Also, you must read about the discontinuation/surrender-related clauses and charges in the policy documents before buying one for yourself.
In this policy, the investment risk in the investment portfolio is borne by the policyholder.