How to Withdraw ULIP Policy?

ULIPs, or Unit Linked Insurance Plans, are one of the most preferred financial plans  if you want to invest in both market-linked investments that meet your financial goals and insurance policies that provide you with life coverage. But as ULIPs are long-term plans, you can get the full benefits only after the completion of a 5-year lock-in period. However, to ensure flexibility, ULIP plans allow you to withdraw the corpus amount if and when required.

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This article will help you understand how to withdraw a ULIP policy in detail.

How to Withdraw ULIP Policy?

Once you subscribe to a ULIP plan as per your requirements, the premium amount is distributed between insurance coverage and capital market funds. 

Premiums in the ULIP plan are paid as a lump sum or regularly in the form of a SIP (Systematic Investment Plan). The investment through SIP in ULIP funds is done based on the stated value of the fund units purchased at the start of the policy. If you have to withdraw the ULIP amount in case of an emergency, some of these units get liquefied.

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

Depending on the insurance company's policies, you can withdraw any amount from the ULIP. However, withdrawals of the ULIP amount higher than a specific limit 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 regular SIP or lump sum 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, 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 SIP premiums, are the first to get withdrawn when requested by you. 

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

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Impact of ULIP Withdrawals on Life Coverage

The impact partial withdrawals have on life insurance coverage depends on the amount you withdraw 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 you withdraw a ULIP amount more than two years prior to your demise, the sum assured under the life insurance will remain the same.

How to Use SIP Calculator While Withdrawing the ULIP Policy?

Using a SIP calculator can help you determine how much money you need to invest each month in order to reach your financial goals. This can be especially helpful if you are considering withdrawing money from your ULIP policy.

When you are considering withdrawing money from your ULIP policy, you can use a SIP calculator to determine how much money you can afford to withdraw without affecting your long-term financial goals.

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 the SIP premiums during these years.

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

  • In the ULIP policies of some companies, a limit on the remaining fund value (e.g., at least 1/3rd of the annual SIP premiums 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.

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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 SIP 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, you should consult with financial experts and understand this important query of how to withdraw a ULIP policy strategically to avoid any negative consequences and to reap the benefits of this policy.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^Tax benefit are for Investments made up to Rs.2.5 L/ yr.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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