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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
As an investor, you can choose to cancel the ULIP policy as and when required. However, financial losses are incurred depending on whether you withdraw it before maturity or after.
We all know that Unit Linked Insurance Plan, popularly known as ULIP, is among India’s most popular insurance policies. It offers 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 concerns, etc.
Ideally, ULIPs are considered investment plans for the long term; it is not wise to surrender your ULIP policy before it reaches maturity. However, before you surrender your policy, it is important to understand how to cancel it and how it can impact your finances.
A Unit Linked Insurance Plan (ULIP) is a financial product that integrates insurance and investment components. In a ULIP, a part of the premium the policyholder pays goes towards providing life insurance coverage, while the remaining portion is invested in various market-linked funds. These funds may include equity, debt, or a combination, allowing policyholders to participate in the financial markets.
Yes, ULIPs are flexible plans, allowing the policyholder to cancel the plan anytime. However, financial repercussions are associated with canceling a policy before its designated lock-in period concludes. Whether driven by dissatisfaction with its performance, the necessity for funds in an emergency, or an inability to continue paying premiums, individuals can consider canceling the policy and withdrawing funds from their ULIP plan.
If you plan to cancel ULIP, 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 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 different charges 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, you must pay some charges depending on the current policy year. 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 the ULIP policy.
However, if you surrender the ULIP policy after five years, the insurance company will levy no such charges.
One of the key advantages of ULIPs is the flexibility they offer regarding withdrawals. Understanding the various types of ULIP withdrawals is essential for policyholders seeking to manage their investments strategically.
In accordance with the regulations set forth by the Insurance Regulatory and Development Authority of India (IRDAI) in 2010, the minimum duration required to be eligible for the withdrawal of ULIP funds was extended from 3 to 5 years. This adjustment aimed to maximize the advantages derived from these long-term investment instruments. Consequently, to initiate the withdrawal of ULIP funds, a minimum period of five years must be completed.
It is crucial to emphasize that no fund liquidity is permitted in the event of surrender or discontinuation of the plan before the culmination of this 5-year timeframe.
Upon the completion of the lock-in period, the liquidation of ULIP funds is permissible as per the withdrawal limits specified by the insurer. Typically, when a withdrawal request is made, the first amounts withdrawn consist of top-ups paid, along with the periodic Systematic Investment Plan (SIP) premiums.
Once the top-up amount is exhausted or if no such amount is available, liquidating the base fund’s value becomes feasible.
To cancel any ULIP policy, inform your agent or visit your insurance provider’s office and the executives there that you want to discontinue the policy. The steps to cancel a ULIP policy are as follows:
Several restrictions govern the ULIP withdrawal amount, and these limitations can be outlined as follows
Nothing rivals the significance of well-informed decision-making. Key considerations to bear in mind before opting for a ULIP withdrawal:
It is essential to understand that cancelling 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 policy documents’ discontinuation/surrender-related clauses and charges before buying one for yourself.
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.
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.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
