How to Withdraw ULIP Policy?

To clarify the doubt of "How to withdraw ULIP policy?" let us understand the withdrawal policy under ULIP in detail.

How to Withdraw ULIP Policy?

Once a ULIP plan is subscribed to as per the requirements of the investor, the premium amount gets distributed between insurance coverage and capital market funds. 

Investing in various units of capital market products is done on the basis of their stated value at the time the policy is purchased. In the case of an emergency, if one must withdraw the ULIP amount, some of these units get liquefied.

With consideration of a few terms and conditions, one can avail themselves of the perk to partially withdraw a ULIP amount even before the policy matures. 

Although depending on the company's policies, any amount can be withdrawn from the ULIP policy. It must be known that too much withdrawal of the ULIP amount may terminate the policy. Therefore, keeping sufficient funds to cover the costs of your ULIP plan is highly recommended.

In cases where top-up payments are made along with the premiums, the withdrawal settlement is made from these payments first and later from the base fund value. Also, if the full tenure of top-up payments is not fulfilled, then withdrawals are only made from the base fund.

Types of ULIP Withdrawals

1. ULIP Withdrawal Before the 5-Year Lock-In Period

   As per the Insurance Regulatory and Development Authority of India (IRDAI) rules of 2010, the minimum period to get eligible for liquidation of ULIP amount was increased from 3 years to 5 years.

   This was done to get maximum benefits from these long-term investment instruments. This also means that to withdraw the ULIP amount, a minimum five-year period of the plan should be completed.

   It is important to note that no fund liquidity is allowed if the plan is surrendered or discontinued before the completion of these 5 years.

2. ULIP Withdrawal After a 5-Year Lock-In Period

   Once the lock-in period is completed, ULIP fund liquidation is allowed as per the withdrawal limits on ULIP amounts by the insurer. 

   In general, the top-ups paid, along with the periodic premium amounts, are the first to get withdrawn when requested by the subscriber. 

   When the top-up amount is depleted, or if no such amount is available, the value of the based fund is allowed to liquidate.

Impact of ULIP Withdrawals on Life Coverage

The impact partial withdrawals have on life insurance coverage depends on the amount the investor withdraws before the two-year term of their demise. In this case, the use of the partial withdrawal feature will decrease the sum assured under life insurance.

On the other hand, if the investor withdraws a ULIP amount more than two years prior to their demise, the sum assured under the life insurance will remain the same.

Limits on ULIP Withdrawals

Depending on the company, a few limits are imposed on the ULIP withdrawal amount, which can be as follows:

• ULIP withdrawals can be made only after a 5-year lock-in period with regular payment of all premiums during these years.

• Once applicable to partially withdraw a ULIP amount, the typical withdrawal limit is up to 10% of the total premium amount, which may go up to a maximum of 20% of the premium.

• In the ULIP policies of some companies, a limit on the remaining fund value (e.g., 1/3 of the annual premium must remain) post-withdrawal may also exist.

• Some companies may have a mandatory limit of one year's premium as the remaining amount in the fund post-withdrawal of the ULIPs.

• Some companies may also impose limits on the number of withdrawals that can be made before being charged a fee.

• Withdrawals from the ULIP policy are only permitted if you are over the age of 18.

Points to Keep in Mind Before ULIP Withdrawals

Nothing can come close to well-informed decision-making. Let us know a few of the important points to keep in mind before a ULIP withdrawal.

• As the partial withdrawal of the ULIP amount reduces the corpus sum, the ULIP policy withdrawal must be made only in emergencies.

• Before making any ULIP withdrawals, make sure you completely understand the rules.

• To take advantage of the partial withdrawal feature, ensure your premiums are paid on time.

• It is recommended to leave enough base funds to cover the life coverage and account maintenance needs.

• The fund value starts at a very low value, which increases over time. So, it is important to consider partial withdrawal after a sufficient period.

On a Final Note!

When faced with a financial emergency, the flexibility of partial withdrawal of the ULIP plan is very beneficial. However, it does impact the plan's structure and benefits for the nominee. Before making such decisions, an investor should consult with financial experts and understand this important query of "How to Withdraw ULIP amount?" holistically to avoid any negative consequences and to reap the benefits of this policy.