ULIP stands for “Unit-Linked Insurance Plan.” A ULIP is an insurance plan that can give you a chance to invest to reach your long-term goals as well as get a life cover to protect your family financially in case something unprecedented happens to you. Through ULIPs, you can invest in equity funds, debt funds, or balanced funds, depending on how much risk you want to take and what your goals are. Because of the ULIP benefits you can avail of, these plans can be a great way to invest in long-term goals for you and your family.
When you buy a ULIP policy, your main goal should be to invest for the long term. Unit-linked insurance plans can give you both life insurance and the chance to invest in the stock market in a single policy. Also, the longer you keep your money in plans like ULIPs, the better it may be for the returns you earn. A ULIP return calculator considers all factors, including your personal details. You can use a ULIP return calculator before investing in the plan to get an idea of what returns you may expect.
A policyholder can surrender their ULIPs after lock-in period. However, there are a number of reasons why people should not give up their ULIPs, even after the lock-in period.
Before making a decision regarding their ULIP, policyholders should learn about the lock-in period, how taxes affect the surrender value, and what happens if they give up their policy before the end of the ULIP lock-in period. Read on to know more about benefits of maintaining your ULIPs for the long-term.
Can ULIPs be surrendered after two years?
Yes, a policyholder can give up a policy whenever they want. But it’s clear when you sign up for the policy that you have to stay with it for at least 5 years. So, it’s not a good idea to give up ULIPs before they reach maturity because you may have to pay the penalty and pay taxes on the surrender value. Moreover, you may have to wait till the end of the lock-in period to be able to receive your dues.
So, experts strongly recommend that a policyholder finish their ULIP policy’s term and serve the lock-in period in order to avoid penalties and taxes and get the most out of their policy when it matures.
Cons of surrendering a ULIP plan before the 5-year lock-in period:
If you stop your ULIP policy before the 5-year lock-in period is over, there can be consequences. You may lose out on the ULIP benefits. Even though the policyholder knows that there is a mandatory five-year lock-in period for ULIPs, they are free to give up the policy if they want to. Here are the problems with giving up ULIPs before the required 5-year policy term:
- Even if the policy is given up before five years, the dues may not go to the policyholder until after the end of the five-year period. Thus, even if you surrender the policy before five years, you may have to wait till the end of five years to be able to receive the surrender value.
- Once you give up the policy, certain “discontinuation charges” can be taken out of the fund value, and the rest may be moved to the “Discontinued Policy” (DP) fund. When the fund is transferred to the DP Fund, the insurance company may charge an extra fee for managing the fund. This amount can’t be more than 0.5% of the value of the whole DP fund. As long as you follow the policy, you may still get about 4% per year in interest from the DP fund.
Tax implications on surrender value
Let’s say you give up your ULIP before the minimum lock-in period is up. In that case, the whole amount received may be counted as income for the year the policyholder received it, and tax can be changed based on the tax bracket they fall into after adjusting this fund to income for that particular fiscal year.
ULIPs can be given back before five years are up. But it’s not a good idea to give up the value of the fund when it’s done, and there are a lot of other great things that happen when ULIPs are done.
