Knowing your exit options, even before you start investing in ULIP is better to stick to your investment until the right moment. However, an early exit from your ULIP investment journey can cause serious implications also having you to pay certain charges as per the Unit Linked Insurance Policy guidelines introduced in 2010.
Here’s what happens when you surrender ULIP insurance before completing the five-year lock-in period.
Surrendering ULIP before five years
Although ULIPs have a lock-in period of five years, you can still surrender the policy even before completing the lock-in period. However, once you apply for quitting the plan, the insurer will deduce the policy discontinuation charges and then transfer your entire policy fund balance to the Discontinued Policy (DP) fund until the completion of the lock-in period.
When your funds are held in the DP fund, you may have to pay fund management charges of up to 0.5% of the fund amount to the insurer. However, you will still earn the interest on your money in DP fund as the insurer will have to pay the minimum guaranteed return. For whatever reason you decide to surrender the ULIP insurance before time, you will only get your ULIP returns back after completing five years.
Options after surrendering ULIP
Even though you have applied for early surrendering the policy, you can still revive the policy in the future should you wish. To do so, you will have to revive the ULIP plan within two years of surrendering and before the plan completes its lock-in period. You also have to pay all the unpaid premiums to continue the policy as before.
Once you have revived your ULIP investment, you will receive the discontinued charges previously deducted from your insurer.
How to make a decision?
If you are confused about surrendering the policy before time, check how your plan is performing. You may exit ULIP insurance before time if you find out the plan underperforming against its benchmark.
But, if your plan is well-performing, consider how much will be the discontinuation charges. In any case, you will be receiving your ULIP returns after five years, so it’s better to surrender the policy should you want to after completing the lock-in period to avoid any charges.
Before you consider exiting the ULIP insurance, consider various charges you will have to pay. Even though you wait out till five years before surrendering your financial goals will be jeopardized. Therefore, choose wisely and invest in long-term ULIPs to receive higher returns to fulfill your financial goals.
Hey, this is Johny Sehgal. I am the owner and caretaker at Finance Jungle. I completed my education in BSC and now heading towards the digital marketing industry. I usually have interests in reading, playing games and watching movies. I also love to write content based on quality information. The main motive of mine is to provide the top and best quality information to my readers. Finance Jungle is the blog for the same.