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Can I cancel my ULIP plan?

Can I cancel my ULIP plan?
September 07, 2023


In this policy, the investment risks in the investment portfolio is borne by the policyholder

Given the uncertainties of life these days, more and more people are relying on insurance plans to secure their loved ones or to fund future financial goals. Here a ULIP plan is indeed a smart choice to make as it combines the advantages of life insurance and a market linked-investment. But what if you wish to cancel your ULIP plan? Going by the experts’ view, it’s not a wise bet to cancel the ULIP policy before its lock-in period is over as it would incur losses instead of gains. However, it’s always important to know the cancellation rules before you choose to invest in ULIP plans.

ULIP at a glance

Understanding the basics of a ULIP plan is of prime importance before you put your money into it. It would also give you a clearer idea of the impacts of a premature cancellation. Let us focus on how the policy works.

  • A ULIP policy caters to your long investment. The more you have your money invested in it, the higher the scope of earning bigger returns.  
  • The premium paid towards the ULIP policy is divided into two parts: one goes to form the life cover and the other is invested in market-linked funds to generate returns.
  • The investment portfolio of the market-linked portion can have only equities, only debt funds or a convenient mix of both depending on the risk tolerance of the investor.
  • The ULIP plan comes with a lock-in period of 5 years, within which the investor is not supposed to surrender his policy and liquidate the fund.
  • On maturity, the policyholder receives the sum assured along with returns earned from the market (if any).
  • Typically, a ULIP plan continued for a longer span of 15-20 years can yield the best possible returns.
  • A ULIP plan comes with tax benefits on premium payment, death and maturity benefits, subject to sections 80C1 and 10(10D)2 of the Income Tax Act, 1961.

Can you cancel the ULIP policy?

The answer is yes, but with losses, if you cancel the ULIP policy before its lock-in period is over. Suppose you are not satisfied with its performance, need money for an emergency or are not in a position to pay premiums anymore. In these cases, you might decide to cancel the policy and take the money out of your ULIP plan. But before that, it’s essential to understand how the process goes and what the consequences are.

How to cancel your ULIP?

If you are determined to cancel your ULIP plan, here’s how to do it:

  • Go to your insurance provider with the policy document, KYC proofs, bank details and chequebook.
  • Explain to the customer care person the reason(s) for cancelling the policy and he will provide you with a surrender form.
  • Alternatively, you can do the process online, following the cancellation procedure on your insurance company's website.
  • Fill in the form and submit all the relevant documents.
  • The team will cross-check and verify all the documents, after which the surrender process will be initiated.
  • Post all the calculations and deductions made by the insurer, you’ll get back your money only after the lock-in period is over.

What happens in a policy cancellation within the lock-in period?

Once the cancellation process is initiated within the 5-year lock-in period, the premium payment gets stopped. The insurer now charges the discontinuation fees as per the policy terms and conditions.

Post that, your money is taken out of the investment portfolio and moved to another fund called the Policy Discontinuation fund. Here, the money is kept for the remaining part of the lock-in period at a fixed 4% interest. Hence, no matter when you surrender your ULIP policy, you’ll get back the money only after the stipulated period. Moreover, you won’t get the tax benefits anymore.

Related Articles:

1. ULIP and Traditional Plans - Detailed Comparison

2. 4 Reasons to Invest In ULIP Plans Today Itself

3. ULIP Tax Benefits - Tax Saving Investment Option

4. What Is the Potential for ULIP Growth?

5. Types and Benefits Ulip Plans - Here's What You Need to Know

6. Eight reasons why ULIP should be there in your investment portfolio

ARN - ED/08/23/3787

1. Subject to conditions specified u/s 80C of the Income tax Act, 1961.

2. Subject to conditions specified u/s 10(10D) of the Income tax Act, 1961.

The afore stated views are based on the current Income-tax law. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.