Lock-in Period in ULIPs Explained

ULIPs or unit-linked insurance plans come with the benefit of investment and insurance, both encapsulated under the same plan. This life insurance policy type is generally considered balanced due to the amalgamation of financial security, market investment and tax savings. If you are looking for ULIP options, you must have come across the term ‘lock-in period’. Having an understanding of the lock-in period can help you ensure benefits. Let us shed light on what actually the lock-in period is and how it is worth emphasizing. 

What Is The Lock-in Period?

The lock-in period is the duration in which the policyholder cannot withdraw or liquidate the accumulated fund value. Unit linked insurance plans have a lock-in period of 5 years. It is always advised to hold the investment in ULIPs after the lock-in period. Note that an early exit from ULIPs or after the lock-in period of five years has its own disadvantages.

Before 2010, the lock-in period for ULIPs was 3 years. The Insurance Regulatory and Development Authority of India (IRDAI) changed the rules and extended the period. Here are a few things you must note about the lock-in period.

Key Things To Note About Lock-in Period In ULIPs

The list includes:

Withdrawal Option

In general, most ULIPs do not allow partial withdrawal till the lock-in period ends. In some plans, unlimited free partial withdrawals are allowed after the lock-in period. While there are some options that allow withdrawal of a specific amount on a monthly basis during the policy tenure. In some cases, partial withdrawals can be made after three years of the policy tenure. It must be noted that in most cases, withdrawals come with charges based on the plan chosen.

Discontinuance Before Lock-in Period

If the policyholder discontinues or surrenders the ULIP before 5 years, the insurance company will transfer the fund value to the DP fund ( fund earmarked for a discontinued policy). Moreover, based on the policy terms and conditions, surrender or discontinuance charges are also deducted. Thereafter, the money is given to the policyholder only after the end of the lock-in period. The amount in the DP fund gains a 4% interest rate (subject to change based on regulatory authority policies) till the end of the lock-in period. 

In the event of the death of the policyholder during the lock-in period, the DP fund amount is given to the nominee. 

If the policyholder surrenders the policy after the lock-in period, they are paid the fund value at the net asset value or NAV, which applies at that point in time. In such cases, discontinuation charges are not applicable. 

To Conclude 

Smart investors know that the ULIP lock-in period is a boon. Why? It is because it allows the growth of their wealth in a substantial manner over a prolonged period. The 5 years of lock-in period allow the policyholders to keep control over the funds into which their premiums are being invested, something that is highly desired.

Also Read: 

What Are The Features Of ULIP?

Common Misconceptions About ULIP

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.