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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
Partial withdrawal in ULIPs allows you to access a portion of your invested money without surrendering the entire policy after the lock-in period.
ULIP, or Unit Linked Insurance plan, refers to an insurance plan that offers dual benefits, including an investment plan to fulfill your long-term goals and a life cover to protect your family during an unfortunate event financially. The premium amount that is paid towards ULIP is divided into two parts.
A part of it is contributed to your life cover, and the remaining is invested in the fund of your choice. ULIPs make inflation-beating returns on your investment possible when continued until the end of the policy term. However, it can also act as an interim source of funds if you face a financial shortfall during the policy period. You can redeem some of the units accumulated in your fund before the policy end date. This partial withdrawal facility helps you avoid digging into your savings, taking expensive loans, or having to sell your assets. One unique advantage of the ULIP plan is that you can take out a part of your accumulated fund value before the policy matures.
Now that you know what ULIP is, let’s dive deep to learn the details regarding how to withdraw a ULIP policy and its limitations.
Policyholders have the option to make partial withdrawals from their ULIPs after the lock-in period. The lock-in period is typically five years from the date of purchase. During this period, no withdrawals are allowed. After the lock-in period expires, policyholders can make partial withdrawals from the fund value while the policy remains in force. Partial withdrawals allow policyholders to access a portion of their invested amount without surrendering the policy entirely. The exact rules and limits for partial withdrawals vary among insurance companies and specific ULIP plans.
According to the Insurance Regulatory Authority of India, ULIPs have a five-year lock-in period during which you cannot withdraw funds. These plans are meant to encourage long-term investments and ensure stability. This life insurance plan offers benefits for both insurance and investment. The lock-in period prevents you from withdrawing funds and providing you higher returns. If you withdraw before the lock-in period ends, you will be charged with surrender fees.
The upper threshold is approximately 25% of your fund’s current value upon withdrawal, with the requirement that a minimum of one year’s premium remain within the fund. To illustrate, consider a scenario where an individual purchases a ULIP policy.
For example, consider a scenario where an individual has purchased a ULIP policy. After a lock-in period of five years, the policy’s fund value stands at ₹3 lakh, with an annual premium of ₹50,000 and a sum assured of ₹6 lakhs. In this context, a quarter of the fund value translates to ₹75,000. By withdrawing ₹75,000, it becomes feasible to execute a partial withdrawal, given that an amount equivalent to one year’s premium (i.e.,₹ 50,000) remains within the fund.
A part of the premium you pay for your ULIP provides life insurance coverage. The insurer invests the remaining amount in the financial instruments you select as per your capacity to bear market fluctuations. The pooled investment from all investors in a ULIP is divided into units. Each unit is assigned a price, known as the Net Asset Value (NAV). It is the price at which investors can purchase and sell ULIP units. The NAV goes up when the value of the underlying funds increases.
Based on the premium you pay, units are assigned to you. You can encash some of those units after the lock-in period of the ULIP start date, the first five years. The amount you receive depends on the total NAV of the number of units redeemed.
If you invest in a ULIP, you must pay a fixed premium. Part of the premium is used to provide coverage for income replacement, while the remaining part is invested in various capital market funds.
Part of the premium that gets invested is further divided into units. ULIP partial withdrawal allows you to redeem some of those units in case of any emergency.
The worth of your investment, the fund value, gets reduced by the amount withdrawn. Moreover, your life cover amount is also lowered by a sum proportionate to the encashed amount. The coverage remains reduced for two years from the withdrawal date. Hence, in case of an unfortunate event during this interval, your nominee will receive a reduced payout.
However, the amount payable to your nominee is restored to the original sum assured after two years. However, your fund value after these two years will depend on the prevailing NAV and investment premiums.
When you withdraw from your ULIP fund, the fund value and the sum assured decrease by the withdrawn amount. However, this reduction in the assured sum is temporary and lasts two years. After these two years, the sum assured will automatically revert to its original amount. Consequently, opting for a partial withdrawal will not adversely affect your ULIP policy in the long run.
It is crucial to remember that the automatic restoration of the sum assured is contingent upon two conditions: refraining from making any additional withdrawals within two years and maintaining the regular payment of due premiums.
Therefore, the sole scenario in which a partial withdrawal from your ULIP policy could have a prolonged impact is if the policyholder passes away during the two years following the withdrawal. The reduced sum assured will be disbursed to the nominee in such an instance.
While planning to buy a ULIP, it is advisable to check different plans that provide maximum benefits. In addition, various factors like stability, customer service quality, the reputation of the brand being opted for, etc., must be considered, which can help the policyholder’s family financially during any unfortunate incident.
Here are some of the top features of the plan:
In case of unfortunate incidents, the nominee gets the claim amount and the fund value. ULIP plans provide liquidity and allow you to withdraw funds when you need them. They also help you fulfill your short-term and long-term financial goals.
By regularly paying the premium and staying invested in the plan, you can receive various loyalty additions and wealth booster benefits.
Investment from your premium amount can be increased anytime at the policyholder’s convenience.
ULIP premiums can be paid monthly, half-yearly, or yearly, depending on your convenience. You can also allocate your money between equity and debt funds in different proportions.
Partial withdrawal from ULIP is taxable; therefore, you enjoy many benefits. You are eligible for a ₹1,50,000 per annum tax benefit under section 80C of the Income Tax Act only if your sum assured is at least 10 times the annual premium you pay; if not, your premium tax benefits will be covered at 10% of your total sum assured.
Partial withdrawals can help you tide over financial crunches, but they affect the monetary benefit your loved ones are entitled to receive. Moreover, the returns you can expect at the end of the investment period also take a hit. Hence, financial experts advise against ULIP partial withdrawal unless it is an absolute emergency to avail of long-term capital growth benefits. In this policy, the policyholder bears the investment risk in the investment portfolio.
1
You can only partially withdraw from your ULIP after the five-year lock-in period. The maximum and minimum withdrawal amounts differ from policy to policy.
2
Partial withdrawal policies vary between insurers. You can withdraw up to 10% or 20% of the accumulated funds. Exceeding the limit can lead to the termination of your coverage.
3
Partial withdrawals are allowed thrice a year after the lock-in period only if you are above 18 years of age.
4
Partial withdrawal in ULIP decreases the sum assured by that amount, which is automatically restored in two years if you don’t withdraw. If the policyholder dies during those 2 years, his nominee will be given the amount.
5
Charges associated with partial withdrawal vary from one policy to another. Some insurers charge for withdrawals, and some don’t.
6
Yes, you can withdraw funds from the equity and debt portions of your ULIP only after the lock-in period of five years ends.
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.
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