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How to Withdraw ULIP Policy?

Unit Linked Insurance Plans (ULIPs) offer flexibility in accessing your investments through withdrawal options, but understanding the rules and restrictions is crucial. While these plans have a mandatory five-year lock-in period, they allow partial withdrawals afterward to help manage financial emergencies. This article explains the withdrawal process, types, limitations, and impact on your policy benefits, helping you make informed decisions about accessing your ULIP funds.

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How to Withdraw ULIP Policy?

How to Withdraw ULIP Policy?
July 18, 2023

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

How to Withdraw from a ULIP Policy?

The Insurance Regulatory and Development Authority of India (IRDAI) understand that investors may have to face financial emergencies. To allow them to take care of their finances without having to pay large penalties, the IRDAI allows partial withdrawals from ULIPs and the ability to receive the maturity amount in staggered instalments over five years. You can request a withdrawal only if all premiums have been paid on time and if you meet the conditions set by the IRDAI and your insurance company. You can then submit a withdrawal request to receive the necessary funds.

Types of ULIP Withdrawals

Before the Five-Year Lock-In Period Ends

ULIPs do not allow withdrawals during the five-year lock-in period. However, you may choose to surrender your policy during this time. Once you surrender or discontinue the plan, you must wait until the end of the lock-in period to receive the amount due.

After Five Years

Once you complete the lock-in period, you become eligible to make partial withdrawals from the accumulated corpus. If you have made a top-up payment towards your plan, and the top-up has completed the five-year lock-in period, your insurance company will provide the withdrawal amount from the top-up fund. If you have not made a top-up payment, the amount will come from your base fund. Ideally, try to keep your withdrawals to a minimum to avoid impacting your ULIP growth and benefits.

Impact of ULIP Withdrawals on Life Coverage

The amount you withdraw from the corpus impacts your life insurance coverage. For every partial withdrawal, your sum assured amount could get decreased. Ensure you check your policy documents for all terms and conditions before requesting to withdraw funds. When you withdraw funds, you also impact your fund value. Your total investment amount decreases due to the amount withdrawn. Many insurance companies limit the amount you can withdraw and the number of partial withdrawals allowed within a policy tenure or policy year. Check your policy documents thoroughly to avoid negatively impacting your finances.

Limits on ULIP Withdrawals

Every insurance company has imposed limitations on the maximum amount you can withdraw from your ULIP. Most often, you cannot withdraw more than 10% or 20% of the accumulated funds. Withdrawing a large amount could lead to policy termination. Depending on your insurance company, you may have limits on the maximum amount you can withdraw from the fund and how you can use it. Most ULIPs only allow withdrawals if you use the funds to pay for higher education, a child’s marriage expenses, or for home construction. Remember, the withdrawal facility is only available once you complete the five-year lock-in period. Additionally, your insurance company may restrict the number of withdrawals allowed in a policy year and how frequently you can make them. Ensure you read and understand your policy’s terms before requesting withdrawals.

Important Points to Keep in Mind Before Withdrawing Funds

Before requesting a withdrawal, ensure you:

  • Understand all the conditions and limitations associated with it.
  • Pay your premiums on time to avoid policy termination.
  • Wait for the five-year lock-in period to end.
  • Request only a partial withdrawal that leaves a majority of the funds untouched.
  • Only request withdrawals in case of financial emergencies.

Final Thoughts

ULIPs enable you to build a corpus for the future while providing some financial assistance in emergencies. Ensure you pay all your premiums on time and keep the withdrawal restrictions in mind to enjoy the partial withdrawal feature. Minimise your withdrawal requests to secure your future and maintain your sum assured amount to safeguard your family’s finances.

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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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Disclaimer

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.

18. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

** The past 5 year fund performance of HDFC Life Discovery Fund (SFIN: ULIF06618/01/18DiscvryFnd101) as on 30th November 2024. The benchmark taken into consideration here is is Nifty Mid Cap 100 which as a return of 26.77% as on 30th November 2024. HDFC Life Discovery Fund is available with HDFC Life ULIPs which comes with a life cover. Please note past fund performance is not indicative of future performance.

ARN – MC/07/23/2979

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