ULIP Withdrawal

Table of Content

1. What is ULIP and ULIP Withdrawal?

2. Types of ULIP Withdrawals

3. How to Withdraw ULIP Amount

4. Impact of ULIP Withdrawal on Life Coverage

5. ULIP Withdrawal: Limits and Restrictions

6. Tax on ULIP Withdrawal

7. Important Points to Keep in Mind Before Withdrawing ULIP Funds

8. Final Thoughts

9. FAQs on ULIP Withdrawal

What is ULIP and ULIP Withdrawal?

What is ULIP? It's one of the most asked questions. To put it in simple words, a ULIP is a unique financial instrument that clubs life insurance protection with market-related investment opportunities. 

When you make any investment in a ULIP, a portion of your premium goes towards insuring your life for your loved ones. The remaining premium is invested in equity, debt, or hybrid funds, based on your life goals and risk appetite. This dual benefit makes ULIPs perfect for those seeking long-term wealth creation and financial security. ULIP withdrawal is the process of getting hold of the funds you have invested in your policy. 

Withdrawals are permitted just after finishing the mandatory 5-year lock-inand can be done in two ways, i.e., partially or fully. Partial withdrawals help you mitigate short-term needs while keeping your policy active. These needs may be educational or medical expenditures. A complete withdrawal, in contrast, refers to the process of surrendering the policy and getting the total fund value. As withdrawals can have an impact on fund value, life cover and taxation, knowing the rules ensures prudent and efficient access to your money.

To make an informed decision, you can make use of an online ULIP calculator that is available on online platforms. This tool assists you in figuring out the potential returns, comparing distinct fund options and planning your premium contributions in an effective manner. 

By using an online ULIP calculator, you can align your investments with your life goals, be aware of how market performance has an impact on your fund value and optimise your ULIP strategy for better growth and protection over the long term.

Types of ULIP Withdrawals

ULIP withdrawals are mainly of two types, partial and complete. Each option has its own set of rules, eligibility parameters and effects on your policy benefits. Knowing these types helps policyholders make well-informed choices about how to access their ULIP funds to meet their financial requirements.

• Partial Withdrawals

Partial withdrawals allow policyholders to withdraw a portion of the accumulated fund value after the 5-year lock-in period ends. The policy stays active even after the withdrawal. This ensures continuity of life cover. 

This option helps mitigate short-term goals. These may be education, medical expenses or exigencies. However, partial withdrawals are subject to particular rules and limits set by the insurer.

• Rules of Partial Withdrawals

You can make partial withdrawals after completing the 5-year lock-in. A minimum fund balance must be maintained in order to keep the policy active.Most insurers cap withdrawals to a percentage of the overall fund value per policy year. Multiple withdrawals are generally allowed within prescribed limits. 

However, each withdrawal reduces or minimises your remaining fund value and may slightly affect your life cover. Some policies might also attract minor charges or have tax implications, based on when and how much is withdrawn.

• Full Withdrawals (Surrendering)

Complete withdrawal means taking out the full fund value and ending your ULIP. Once surrendered, the life insurance cover stops immediately. If the surrender occurs before the 5-year lock-in, charges might apply. Also, the amount is held in a discontinued fund until the lock-in period is reached. 

Post five years, you can withdraw the total fund value with zero restrictions. However, it is essential to factor in tax implications and the loss of future protection benefits.

1. During the Lock-in Period

Complete withdrawal from a ULIP is not permitted in the course of the 5-year lock-in. If a policyholder chooses to surrender early, surrender charges/penalties might apply. Also, the amount withdrawn is moved to a discontinued fund until the lock-in is reached.

Making withdrawals early can lower life cover and long term investment growth. Also, tax treatment might differ, which makes it essential that you are aware of the financial consequences before opting for withdrawals.

2. After the Lock-in Period

Once the 5-year lock-in is over, policyholders can makewithdrawalsin full without restrictions. Surrender charges, if any, may be minimal or waived. However, withdrawing the full amount ends the life cover associated with the policy. Also, the payout might have tax implications depending on policy terms and conditions. 

This option offers excellent liquidity and flexibility while formally closing the ULIP, which permits investors to access their accumulated wealth freely.

How to Withdraw ULIP Amount

ULIP withdrawal is a process that is well-structured and permits policyholders to get hold of their invested funds while maintaining compliance with policyregulatory guidelines. 

To ensure a smooth experience, it is a mustthat you review your eligibility, understand your fund value and keep the required documents handy. Abiding by the steps correctly not just simplifies the process but also ensures your withdrawal is processed smoothly.

• Confirm Your Withdrawal Eligibility

Before initiating a ULIP withdrawal, make sure you confirm that you meet the eligibility parameters. Withdrawals are permitted only after you complete the 5-year lock-in from the policy start date. The policy should be active. Also, all due premiums must be paid in full. Only the primary policyholder can place a withdrawal request.

In case the policy has lapsed or been discontinued, access to funds might only be possible via the Discontinued Policy Fund (DPF). Checking your eligibility in advance prevents any kind of delay/rejection in the course of the withdrawal process.

• Review Your ULIP Fund Value

It is essential that you check your current fund value and the latest Net Asset Value (NAV) before proceeding with a withdrawal. As ULIP investments are market-associated, fund values fluctuate on a regular basis depending on market performance. 

You can access this data via your insurer’s online portal, mobile app or fund statement, or by consulting your financial advisor. Being aware of the market scenario assists you in planning out withdrawals in a strategic way, avoiding times of low NAV and ensuring you do not compromise on the long-term policy benefits.

• Submit Your Withdrawal Request

Once you are fully ready, submit your withdrawal request either via the online route through your insurer's portal or mobile app or offline by visiting the nearest branch. You will need to provide Know Your Customer (KYC) documents, bank account details and your policy document, particularly for complete withdrawals or policy surrenders. 

The insurer authenticates your identity, eligibility and policy info before processing. Partial and complete withdrawals might have separate submission requirements, so make sure all details/eligibility parametersare abided by to avoid delays/rejection.

• Processing and Fund Disbursement Timeline

Post submission, the insurer generally processes ULIP withdrawal requests within a span of seven working days, depending on authentication and policy terms and conditions. For partial withdrawals, the approved amount is credited while the policy stays active. 

In case of a complete surrender, the whole fund value is disbursed, and the life cover ends. Policyholders get confirmation via email, SMS or official statements once the funds are credited. Tracking your request status assists in ensuring transparency and timely fund receipt.

• Maintain Records of Your ULIP Withdrawal

Post withdrawal, keep all related documents safely. This includes fund statements, acknowledgement receipts, tax certificates and payment proofs. These records assist in clarifying your tax obligations and resolving any disputes or queries in the future.

Also, organised documentation supports better financial planning and policy management. Examining and updating your records on a periodic basis ensures outstanding accuracy and safeguards your interests during audits/future transactions.

Impact of ULIP Withdrawal on Life Coverage

Any withdrawal from a ULIP can impact the fund value and the life insurance cover associated with the policy. Partial withdrawals minimise the total fund value. In some cases, the sum assured may even be reduced proportionally, depending on the policy terms and conditions. Here are specific points to note on withdrawals to avoid the negative impacts. 

• Insurers generally define particular limits on how much and how often withdrawals can be performed within a policy year.

• Reviewing your policy document assists you in better understanding how withdrawals might affect your cover as well as your investment balance.

• For instance, if your ULIP offers a sum assured equalling ₹10 lakh and you withdraw an amount equalling ₹1 lakh, then the adequate life cover might fall to ₹9 lakh, depending on the rules of the insurer.

• Always make sure to maintain a healthy balance between accessing liquidity and preserving long-term life protection.

• It is advised to get in touch with your insurer/financial advisor before making any withdrawals to ensure your financial and protection goals are intact.

ULIP Withdrawal: Limits and Restrictions

• Every ULIP policy comes with withdrawal limits set by the insurer. This is usually defined as a percentage of the total fund value.
• Withdrawals are permitted only after finishing the 5-year lock-in. Thismakes the policy a long-term investment tool.
• Insurers generally specify the minimum and maximum withdrawal amounts. For instance, a minimum of ₹5,000 and a maximum of up to 20–25 per cent of the fund value.
• Large/frequent withdrawals might lower fund value and, in some scenarios, impact policy continuity or life cover.
• Most insurers restrict the number of withdrawals per policy year, permitting two to three partial withdrawals.
• While funds can be utilised for goals such as education, exigencies or home renovation, usage flexibility may differ by policy.
• Always scrutinise your policy terms to understand withdrawal rules and ensure your cover and investment goals remain protected.

Tax on ULIP Withdrawal

ULIP withdrawals can be tax-free or taxable. This is based on certain factors. They are the policy term, the annual premium, and the sum assured. One of the ULIP tax benefits is that withdrawals post the 5-year lock-in are usually exempt as per Section 10(10D)* of the Income Tax Act, 1961 if the sum assured is at least ten times the annual premium and the overall annual premiums do not surpass the mark of ₹2.5 lakh.

For policies issued post February 2021, if premiums surpass this limit, any gains are taxed as long-term capital gains (LTCG), with a 10% tax rate applicable on profits exceeding the mark of ₹1 lakh. Understanding such ULIP tax benefits and rules assists policyholders in planning out withdrawals prudently, ensuring they maximise returns while avoiding any kind of unanticipated tax liabilities.

Important Points to Keep in Mind Before Withdrawing ULIP Funds

Before requesting a withdrawal, ensure you:

• Understand all the conditions and limitations associated with it.

• Pay your premiums on time to avoid policy termination.

• Wait for the five-year lock-in period to end.

• Request only a partial withdrawal that leaves a majority of the funds untouched.

• Only request withdrawals in case of financial emergencies.

Final Thoughts

ULIPs offer the best of both investment growth and life protection, making them a prudent choice for long-term financial planning. Depending on your life goals and risk appetite level, you can select from distinct types of ULIP plans (i.e., equity-linked, debt-linked or balanced ULIPs), each offering benefits that are unique in nature. However, maintaining your policy’s benefits requires timely premium payments as well as prudent management of withdrawals.

It is prudent to plan out partial withdrawals just when necessary, so your fund value and life cover stay strong over the long term. Responsible withdrawal habits not only support financial flexibility but also assist in securing your family’s future.

Always examine your policy terms. Consult a financial advisor before withdrawing to make sure your decisions are in line with your short-term requirements and long-term goals.

FAQs on ULIP Withdrawal

Can you withdraw money from a ULIP?

Yes. You can withdraw money from your ULIP. But only after completing the mandatory 5-year lock-in. This option, known as partial withdrawal, permits you to access a portion of your accumulated fund value. However, limits apply based on your insurer's rules, and frequent withdrawals can impact your policy's fund value and life cover.

Can you withdraw your ULIP after 5 years?

Yes. Post the lock-in of 5 years, you can withdraw funds without any restrictions. You can select partial withdrawal to keep the policy active or full surrender to close it. While surrender charges are minimal after this period, it isessential to consider the tax implications and the effect on your life insurance cover before you proceed.

Can ULIP be surrendered before maturity?

Yes. ULIPs can be surrendered before maturity. But doing so in the course of the lock-in involves penalties and loss of benefits. The fund value is transferred to a Discontinued Policy Fund (DPF) and can be accessed post five-year lock-in period. Early surrender even terminates life cover and might result in lower returns compared to staying invested.

What is the difference between ULIP partial withdrawal and policy surrender?

A partial withdrawal lets you take out a portion of your fund value while keeping the policy and life cover active. In contrast, policy surrender means closing the ULIP completely and receiving the remaining fund value. Partial withdrawals provide liquidity. However, surrendering ends your investment and insurance benefits permanently.

Is it a good time to withdraw from the equity ULIP fund in 2025?

It depends on market scenarios and your goals. If markets are volatile in nature, withdrawing from an equity-oriented ULIP might lock in short-term losses. But if your fund has grown considerably or you require liquidity, a strategic partial withdrawal could make good sense. Always examine market trends and consult a financial advisor before making a decision.