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All You Need To Know about Partial Withdrawal Of ULIPs

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September 01, 2022

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

An Introduction

Unit-linked insurance plans, or ULIPs, are often regarded as one of the most conservative financial tools available today. They provide the unique benefit of life insurance protection as well as wealth creation through investing – all in one plan. ULIPs feature a five-year lock-in period, during which your money is invested in a variety of market-linked fund options with varying degrees of risk. One of the many benefits of ULIP investing is the option to make partial withdrawals from the accumulated fund value to meet any immediate needs. You can make partial withdrawals once the lock-in period has ended. However, the versatility that ULIPs provide comes with a few caveats.

Partial Withdrawal Limits

In most cases, there is no set restriction on how much money you can remove from an active ULIP policy. However, it is recommended that you should not overuse this facility to the point where there are insufficient funds to assist cover the cost of the ULIP. Otherwise, the policy may be terminated. Partially withdrawing from a ULIPS policy may have different limits depending on the insurer. Withdrawals of up to 10% of the total premium paid are usually allowed, but only after the mandatory lock-in period has passed. In addition, the insurance company may impose other restrictions, such as a minimum withdrawal amount or a maximum number of partial withdrawals each year.

As a result, you should read your ULIP plan's policy booklet to learn more about these terms and conditions, while also making sure that you pay your premiums on time.

Making Partial Withdrawals Before the Lock-in Period Is Over

There is no provision in ULIPs for partial withdrawals before the end of the five-year required lock-in term. Even if you decide to surrender or cancel the ULIP policy within the lock-in period, you will not get the money until the five-year period has passed.

After the Lock-in Period, Making Partial Withdrawals

After the lock-in period expires, you can make partial withdrawals as the policyholder. However, there are a few things to keep in mind before making any withdrawals from the accrued funds. You cannot withdraw the whole accumulated fund amount prior to the policy's maturity date or without surrendering or terminating it. If you bought a ULIP plan for your minor child, he/she/they can only make partial withdrawals from the insurance after he/she/they reach the age of 18.

The Impact of a Partial Withdrawal on Life Insurance

There's a chance you're concerned about the impact of withdrawals on your insurance coverage. Typically, each partial withdrawal reduces the sum assured under your ULIP life insurance policy. There will be no effect on the sum assured if you make the withdrawal more than two years before the unfortunate death of the policyholder. You must read the policy document to understand how partial withdrawals work for the plan coverage you have chosen.

Premium payments must be made on a regular basis

To take advantage of the ULIP plan's numerous benefits, including the partial withdrawal option, you must always pay the premiums on time, ensuring that the insurance remains active. The insurance company may refuse further partial withdrawals if there are any lapses, suspensions, or disagreements in premium payment.

The money released after the lock-in period is tax-free, so you can use the ULIP funds to achieve your immediate life goals without incurring any tax consequences. However, in order to get the most out of your ULIP investment, you must stick to the maximum amount of partial withdrawals allowed per year, as indicated in your policy underwriting.

In A Nutshell

ULIPs' availability of partial withdrawals offers its own set of benefits. It provides you with the finances to pursue short-term objectives such as taking a vacation, renovating your home, or purchasing a household item. It is vital to remember, however, that this feature has an impact on the sum assured, so it is critical to use it properly for your benefit.

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ARN: ED/02/22/27497

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

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