What are the ULIP Withdrawal Conditions?


Over the years, investing in a ULIP policy has proven to be a great investment plan for many, be it for any purpose – wealth creation, education loan for your child, or your retirement planning.

A ULIP Policy, along with providing an insurance cover, offers returns on market-linked investments, which can be in debt, equity, or a hybrid option, yielding significant returns. There are several incomparable benefits that ULIPs provide you with, including tax savings. If you invest in a ULIP plan in India, you can avail of tax benefits as per Section 80c of the Income Tax Act, 1961. However, the amount of tax benefit received depends on the lock-in period, maturity benefits, and the returns.

During the ULIP Policy, you can even change the allocation of funds a number of times in a year depending on the existing market conditions and avail maximum benefits. Apart from this, even during the lock-in period, you are free to make withdrawals several times, depending on the type of your policy. Though, a small fee or other deductions are made from the amount you withdraw. 

Among all monthly income schemes, consider investing in a ULIP Plan to facilitate a passive income source and receive other significant benefits. Nonetheless, before you invest in a ULIP policy, you must familiarize yourself with critical terms and conditions such as all the withdrawal conditions and plan your finances accordingly.

What are the Conditions for Withdrawal in A ULIP Policy?

  1. Withdrawal Before Five Year Lock-In Period

During the lock-in period, which is five years, you cannot withdraw any amount. Even if you opt to surrender or terminate the policy, you will receive the whole amount only after the lock-in period ends.

  1. Withdrawal After Five Year Lock-In Period

Once the five year lock-in period gets completed, the option of partial withdrawals gets activated. Whether the base fund will be affected or not depends on the top-up payment, if made any. There are two broad conditions:

  1. If you’ve made the top-up payment, your base fund will remain unaffected, and your withdrawal amount will be deducted from the top-up payment first.
  2. If you haven’t made the top-up payment or the policy has not yet completed a tenure of 5 years, the withdrawal amount will be deducted from the base fund.

Note: If the investor is a minor, he/she should’ve completed 18years of age.

  1. Effect Of Partial Withdrawal On Life Coverage 

When opting for partial withdrawal, the policyholders are usually concerned about what effect they will have on the sum assured as the policy amount. This depends on the amount you’ve withdrawn and the time of your withdrawal. Depending on this, again, there are two conditions:

  1. If you’ve withdrawn the amount in the two-year term before your demise, your amount will be deducted from the assured sum.
  2. Whereas, if any amount was withdrawn before the span of two years, your assured sum remains unaffected, and the nominee gets the full amount as per policy.

Certain Limitations on Withdrawal

Apart from the conditions mentioned above, here are some more withdrawal limitations:

  1. Generally, there is no fixed limit on the amount which can be withdrawn. However, you should leave enough funds such that the amount of your ULIP Plan stays covered. Withdrawing larger amounts frequently might even lead to the termination of your ULIP policy.
  2. A standard ULIP policy generally allows a withdrawal of up to 10% or 20% of the total premium amount paid, depending on the policy you’ve chosen.

Apart from this, the withdrawal amount might also depend on the fund amount. After the withdrawal, the fund value should be either three times or at least equal to the annual premium paid for once, depending on the type of policy you’ve opted for.

  1. Usually, there’s a limit on the number of withdrawals, which varies from policy to policy. After a certain number of withdrawals, which are allowed free of cost, an administrative fee is imposed.

In several policies, partial withdrawals can be made only in a gap of 3 months.

Having read all the withdrawal conditions, you should choose the right ULIP policy as per your requirement and goals. Though you should avoid partial withdrawals to get good returns at the end, but they can be a blessing in tough times. Therefore, if you have long-term financial goals of wealth creation, you should invest in an appropriate ULIP Policy to solve the dual purpose of investment and an insurance cover.