How ULIP Lock-In Period Helps You Invest For Long-Term Goals?

Updated On Jul 01, 2021

A ULIP (Unit Linked Insurance Plan) is an insurance and investment bundle that is bound together by financial security and the promise of higher payouts in favourable conditions. Lock- in period under ULIP refers to the specific time frame set by the company, that does not allow the policyholder to access the benefits of partial withdrawal.

It refers to a period of 5 years from the policy's start date during which the proceeds of the Policy cannot be paid by to the policyholder except in the event of death or any of the policy's covered events.

In this article, we have covered how the feature of securing lock- in period can help inculcate a habit of saving and investment in the long term.

Benefits of Lock- In Period Under ULIPs

Given below is how lock in period under ULIP promotes long term investment

Helps Maintain A Stipulated Savings Corpus

Since the lock- in period restricts transactions from the policy before a certain period of time, the savings corpus flourishes throughout the period. The savings corpus can be used by the policyholder after the end of the lock in period.

This feature helps in the growth of the savings of the policyholder and incentivizes the whole process through the promise of higher payouts under favorable conditions at maturity of the policy.

Secured Investment

ULIP plans help the policyholder channelize their premiums towards various funds. This helps inculcate a habit of investment as the policyholder can not withdraw them before a certain amount of time. This is a rewarding exercise as investors are drawn towards the regularly growing higher payouts at the end of the policyholder term.

In Case Of Discontinuation of Policy Prior to the Completion of the ULIP Lock-in Period

If a policy is terminated or surrendered before the end of the five-year period, the fund value is moved to a fund created for discontinued policies, commonly referred to as the DP fund.

Only once the lock-in term has ended is the money reimbursed to the plan holder. Until the conclusion of the lock-in term, money in the DP fund earns interest rate (minimum guaranteed). This interest rate may change depending on the regulations of the regulatory authorities.

In case of death of the policyholder, the DP funds are directed towards the nominee.

Conclusion

ULIP plans function as a hybrid plan of investment and Insurance. The feature of the inbuilt lock- in period elevates the chances of receiving higher payouts in the long run. This, in turn, attracts the attention of the investors and helps them secure their premiums for the long term.