Partial Withdrawal of ULIPs: All You Need to Know

Limits on Partial Withdrawal

Although ULIPs allow partial withdrawals of accumulated fund value, certain conditions must first be met. Firstly, partial withdrawals can be made only after the completion of the lock-in period, which in the case of ULIPs is 5 years.

Secondly, partial withdrawals may be subject to certain charges depending on the policy terms and conditions. Some policies allow individuals to make withdrawals free up to a certain limit, whereas others may charge upto Rs.500 per transaction. Finally, ULIPs may also come with other limits, such as caps on the number of partial withdrawals you can make and the total amount of withdrawals.

Since these limits on partial withdrawals can vary from one ULIP to another, it is advisable to read through the policy document and terms to get a better idea.

 

Partial withdrawals before the Lock-In Period

Since ULIPs are supposed to be a part of long-term financial planning, the Insurance and Regulatory Development Authority of India (IRDAI) has imposed a lock-in period of 5 years. The Lock-in Period ensures that investors stay invested for a reasonable tenure and gives a fair chance to their investments to grow under the plan.

The partial withdrawal of funds from ULIP shall be allowed only after the lock-in period of 5 years. That’s not all. Even if you discontinue or surrender your ULIP before the end of the lock-in period, the remaining fund value, if any, is only paid out to you after the expiry of the 5-year lock-in.

 

Making Partial Withdrawals After the Lock-In Period

However, once the lock-in period ends, partial withdrawals are permitted. That said, here’s something that you should know. If you make a partial withdrawal, funds built up from the top-up premiums, if any, will be utilized first as long as such fund supports the partial withdrawal. And only once all of the top-up premium fund is withdrawn, will you be able to partially withdraw your base fund value.

 

Effects of Partial Withdrawal on Your Life Cover

Any partial withdrawal from a ULIP reduces the fund value. Also, for ULIPs where the death benefit is as per clause 3 of Schedule I of the IRDAI (Insurance Products) Regulations, 2024, the sum assured payable on death is reduced only for partial withdrawals made in the two years immediately before death of the life assured. Hence, if death occurs within two years of a partial withdrawal, the payout may reduce to that extent.

 

Key Takeaways

1. ULIPs are life insurance plans that provide life insurance coverage along with the potential of wealth creation through market-linked returns.
2. ULIPs allow partial withdrawals post the lock in period, in case of exigencies, which means withdrawing a part of your fund value before maturity.
3. Partial withdrawals are permitted after the 5-year lock-in period, subject to the terms and conditions of the policy.
4. Partial withdrawals under a ULIP reduce the fund value. The sum assured (life cover) generally remains unchanged, subject to the policy’s terms and conditions.

 

Conclusion

As you can see, partial withdrawals may affect your ULIP in more ways than one. Therefore, consider refraining from making any partial withdrawals unless necessary. This way, you can let your ULIP Fund grow, helping you enjoy higher returns.

That said, if you’re worried about how to invest in a ULIP, don’t be. It is very simple and easy to understand. All that you must do is visit an insurance provider’s website, fill out and submit the application form, and make the premium contribution. It takes only a few minutes to complete and can be done online.

 

FAQs

 

1. Is partial withdrawal allowed in ULIP?

Partial withdrawals are permitted under ULIPs after the 5-year lock-in period, subject to policy terms and conditions.

 

2. Is a partial withdrawal taxable?

Partial withdrawals from ULIPs are not taxable, subject to specific terms and conditions under the Income Tax Act of 1961.