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ULIP policy premiums - what happens if I stop paying them after the first payment?

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what happens if I stop paying ULIP Policy Premiums after the first payment
June 08, 2023

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In this policy, the investment risks in the investment portfolio is borne by the policyholder

Most young Indians today want to invest to secure their financial future. Unit-Linked Insurance Plans (ULIPs) have become a popular investment option for hard-working Indians. ULIPs allow individuals to earn returns on their investments while enjoying the safety of life coverage. You may have purchased a ULIP to secure your family's financial future. However, if your circumstances change, you may not be able to make future premium payments. Let's better understand what happens if you cannot pay your ULIP premium.

What Happens When I Stop Paying Premiums?

ULIPs allow investors to choose the premium payment frequency. You can pay a single premium, annual amounts, bi-annual premiums, quarterly premiums, or even monthly premiums. If you select a regular payment option, you must pay your ULIP premium on time. Some insurance companies may offer a grace period. However, if you cannot pay the premium within the timeline, the insurance company will consider your plan cancelled.

The Concept of a Lock-In Period

A lock-in period refers to the time during which investors cannot withdraw funds from the investment. ULIPs come with a five-year lock-in period. The investor must pay all premiums during the lock-in period to keep the policy active.

Discontinuing the ULIP Policy Within the Lock-In Period

If an investor discontinues their ULIP policy within the lock-in period, they will not receive the entire invested amount. The investor will receive the fund value, which is the value of the fund units that the investor has accumulated till the discontinuation of the policy, after deducting the discontinuation charges. The discontinuation charges help the insurance company cover the costs incurred during the initial years of the policy.

The discontinuation charges depend on when the investor discontinues the policy. Insurance companies may deduct up to 20% of the paid premium when the investor cancels within the first year. After the first year, the charges may reduce.

If you do not pay your ULIP premium after the first year, the insurance company considers the ULIP discontinued. However, they will not release the payment until the lock-in period ends. Let's better understand with an example. Rhea purchased a ULIP on 1st January 2021 and chose to pay her premium annually. Unfortunately, she gets laid off and cannot pay the following year. Rhea's insurance company considers her plan cancelled and moves the funds to a discontinued policy fund. She also loses her life coverage. When the lock-in period passes, the insurance company will deduct the surrender charges and pay Rhea the remaining amount.

What Happens When You Stop Paying Your ULIP Premium After the First Payment?

Here's what happens if you stop paying your ULIP premium after the first year:

  • Discontinuance of Life Cover

    Your life cover gets discontinued, leaving your loved ones vulnerable to financial issues in the future.

  • Policy Revival

    Non-payment of premiums leads to your policy ending. However, you can revive the policy within a stipulated period if you pay all outstanding premiums and penalties as per the insurance company's guidelines.

  • Discontinuance Charges

    The insurer may levy discontinuance charges if you fail to pay your premiums. It might be a percentage of all premiums paid. The amount helps the insurance company recover the expenses incurred to manage your policy.

  • Moved Fund Value

    The ULIP fund value gets moved to a discontinued policy fund where it can earn returns based on market performance. However, your insurance company will likely deduct high surrender charges.

  • Surrender Value

    You can surrender your ULIP policy during the discontinuance phase. However, the surrender value of your policy will be lower than the fund value due to the discontinuance charges and other deductions.

It's important to note that the specific terms and conditions of ULIP policies may vary depending on the insurer and the policy terms. Ensure you read the policy documents before investing. Understanding the terms and conditions allows you to make informed decisions about your investment.

ULIPs are a long-term investment option that offers the combined benefits of life insurance and investment opportunities. However, you must pay the ULIP premium regularly to keep the policy active. Discontinuing the policy within the lock-in period can result in a loss of invested amount, and stopping the premium payment after the first payment can result in policy termination, resulting in a loss of life cover and investment benefits. Investors should carefully evaluate their financial goals and commitments before investing in ULIPs to avoid financial losses.

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ARN - MC/05/23/2048

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

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