Insurance

Everything You Need to Know About Lock-in Period in ULIP Insurance Policy

Unit-linked insurance plans (ULIP) have a lock-in period. Generally, the lock-in period is of 5 years. Therefore, you can’t withdraw any funds until the end of the lock-in period.

Read on to know more about the ULIP lock-in period.

ULIPs are long-term investment plans. With the help of a ULIP, a person can achieve his/her life goals. Apart from providing returns, ULIPs also offer life cover.

A ULIP offers the benefit of insurance as well as investment. When a person invests in a ULIP, a part of the premium is used to invest in different fund options, and the other part is used for life cover.

Here are some benefits of investing in a ULIP-

  • Provides Benefit of Insurance and Investment

This is one of the most important benefits of ULIPs. The life cover provided by a ULIP can provide security to the policyholder’s family. Furthermore, after the ULIP matures, the policyholder can receive investment returns.

  • Provides Flexibility

ULIPs provide various investment options, and an investor can choose an option based on his/her risk appetite. For instance, if an investor has a high-risk appetite, then he/she can choose equity funds.

While ULIP offers benefits, you need to keep in mind a few important things. One of them is the lock-in period.

What is a ULIP Lock-in Period?

The Lock-in period is a duration during which a policyholder can’t withdraw any funds. Generally, it is 5 five years for ULIPs. In case a policyholder surrenders the plan, he/she will not receive the payout. The policyholder will not receive any returns from the policy.

Most of the ULIPs don’t offer partial withdrawal before the lock-in period. But a policyholder can make partial withdrawals after the end of the lock-in period. There are a few policies that don’t put any restrictions on the number of free partial withdrawals.

What Can Happen if a Policy is Surrendered Before the Lock-in Period?

If a policyholder surrenders a policy before the end of the lock-in period, then the insurer will transfer the funds to the discontinued policy. There will be surrender charges. The money that is in the discontinued policy will be returned to the policyholder after the lock-in period ends.

Why Shouldn’t You Exit a ULIP Immediately after the Lock-in Period?

  • Can Provide With Long-Term Investment Benefits

ULIPs are a great investment policy if you plan to stay invested for a long term. While you can exit the policy after the lock-in period, it is recommended to stay invested to earn higher returns.

  • Can Pay Lower Charges in the Long-Term

When you start investing in ULIP insurance, you will have to pay a premium allocation charge. Apart from the premium allocation charge, there are other charges that you will have to pay. These charges are high during the initial years of the policy. However, they reduce over the years.

Thus, the longer you stay invested, the lower the charges will be. After a few years, these charges will no longer impact the fund value. Therefore, if you stay invested for a longer-term, then you can reap higher returns.