How To Withdraw ULIP Policy?

A ULIP, or Unit-linked Insurance Plan, is a long-term investment product that combines life insurance with market-linked returns. However, life does not always go as planned. Emergencies may crop up which require you to access your funds earlier than intended. Knowing how and when you can withdraw money from your ULIP can help you make the most of this product.

What is ULIP Plan Withdrawal?

Before you make any plans to withdraw, it is important to understand what is ULIP plan withdrawal. As ULIP is a unique product with insurance coverage and a lock-in period, it is crucial to understand that the withdrawal process may work differently.

Withdrawing Before 5 Years (Lock-in Period)

A ULIP comes with a mandatory five-year lock-in period. During this time, you cannot make any withdrawals. However, if you choose to surrender the plan before this period, your money will be paid out only after the lock-in ends.

Withdrawing After 5 Years

In addition, when you buy life insurance, you choose a tenure during which the plan will give you coverage. After the five years are complete but before the end of this tenure, you have the option to make partial withdrawals from your ULIP’s fund value.

If you have made a top-up on your plan, the withdrawal amount may be taken from your top-up fund. Otherwise, it may be taken from the base fund. This can be helpful in case of financial emergencies, such as urgent hospitalisation costs. However, it will still be considered a premature withdrawal as your ULIP has not matured yet. Hence, it will be subject to certain terms and restrictions.

Now that you know what is ULIP plan withdrawal, let’s look at what you should keep in mind before you begin the process.

Things to Keep in Mind Before Withdrawing ULIP Funds

When you buy life insurance, you may have planned to withdraw only after the plan matures. However, life may throw situations where you may have to withdraw funds prematurely. Before you do so, remember to keep the following things in mind:

- Withdrawals can reduce your life insurance coverage.
- The withdrawal may be allowed only if you have paid all premiums on time.
- There may be limits on how often and how much you can withdraw (usually 10–20% of the fund value) in a year.
- Withdrawals affect your investment returns. The more you take out, the less your money grows.
- When you buy life insurance, remember to review your ULIP’s terms for rules on the frequency and purpose of withdrawals.

Impact on Life Cover and Fund Value

Each withdrawal reduces the fund value and thus will also reduce the total maturity proceeds your loved ones will receive in case of a claim. Hence, withdrawals should be a last resort and only used during genuine financial crises.

To protect your long-term goals, it is better to buy life insurance with adequate coverage and keep withdrawals from ULIPs minimal. The best ULIP plans balance investment growth with insurance protection, so using the funds wisely is important.

ULIPs offer a helpful feature of partial withdrawal, especially after five years, but it comes with rules and consequences. Understanding what ULIP plan withdrawal is and taking a disciplined approach to withdrawals is key. The best ULIP plans can secure your future and provide liquidity during tough times, but only if you avoid unnecessary withdrawals.

(Note: This article has been written by the Brand Desk.)