Can I Stop A ULIP?
Updated On Sep 01, 2021
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Returns in a Ulip are market-linked, meaning they are affected by the performance of the underlying asset class, whether it is stock, debt, or both. Ulips are long-term products that combine risk protection and returns. As a result, the product must be evaluated with some costs deducted from the sum assured (mortality charges, fund management fees, policy administration fees, and so on). It would take several good upward stock market cycles to recoup these costs while also providing you with a fair return.
Things To Check Regarding Discontinuing ULIP
Here are few things to check regarding discontinuing ULIP:
1. Surrendering Before The End Of The Five-year Period
Ulips has a five-year lock-in period, although it is still possible to cancel the insurance. The money, on the other hand, will not be paid to the policyholder until the end of the 5-year period. Importantly, the amount received after 5 years is not the fund value on the date of surrender. This is how it goes. Following a policy surrender request, the insurer will deduct specific discontinuation charges before transferring the remaining fund value to the Discontinued Policy (DP) fund.
During the time that money is held in the DP fund, the insurer may impose a fund management fee of up to 0.5 percent of the total amount. The money in the DP fund will continue to generate interest because insurers are required to give a minimum guaranteed return that varies over time. DP funds currently pay a rate of 4% per year in interest.
Also read - Which ULIP plan is best in India?
2. Option After Surrendering
Even if the policy has been surrendered, it can be revived within two years of the date of cessation, but not later than the end of the fifth year. To resurrect the policy, all unpaid payments must be paid, and the coverage will remain in effect.
On resurrection, previously subtracted discontinuance charges would be added to the DP fund value, while policy administration and premium allocation charges, which were not collected in the DP Fund, will be imposed. After submitting the surrender request, the risk cover on the insurance will be removed. The policyholder will be entitled to the DP fund value after the fifth policy year if the policy is not renewed before the end of the fifth policy year.
3. Discontinuance Charges
If a policy's yearly premium exceeds Rs 25,000, the maximum DC in the first, second, third, and fourth policy years can be Rs 6,000, Rs 5,000, Rs 4,000, or Rs 2,000, respectively. In the first, second, third, and fourth policy years, it is Rs 3,000, Rs 2,000, Rs 1,500, or Rs 1,000, respectively. There is no charge if the policy is canceled in the fifth policy year.
A unit-linked insurance plan's different charges are front-loaded and primarily amortized throughout the first five years of the policy. As a result, quitting quickly after the five-year lock-in period ends may not produce the best results, and even long-term ambitions may be jeopardized. As a result, attach your Ulip investments to a long-term goal and keep it going by paying the premiums on time until the term ends.
You may also like to read - Which is better ULIP or term insurance?
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.