ULIP: Should you Exit before maturity or not?

The first of the two parts is the one where the money is collected for your life cover. You invest the other part in any fund you choose, and it covers the investment part. It is an excellent investment option as you get the opportunity to invest in debt, equity, or a combination of both. It all depends on the appetite for risk that you possess. It is a cover for you and your family as well.

Should You Exit ULIP Plan Once The Lock-In Period Ends

Surrendering the policy during Lock-In Period 

Investors can surrender during the prescribed lock-in period of 5 years. The risk cover will end as soon as you request the surrender. It would help if you kept in mind that the value for surrender will only be paid after the five years. You will not be paid the fund value on the date of surrender. 

Also Read: ULIPs Demystified

The post-lock-in period payout has many deductions, and when you surrender a policy, some charges for discontinuance are levied. Once the charges for discontinuance are levied, the left fund money gets transferred to a DP (Discontinued Policy) fund. The funds will remain in the Discontinued Policy fund until the end of five years or the lock-in period. A maximum of 0.5% of the fund value management fee might be charged during this tenure. You can get a maximum of 4% return annually as the fund will be eligible to earn interest, which gives you a minimum return guaranteed. 

If you surrender during the lock-in period, the tax deduction you claim against your ULIP will be considered as income and taxed according to the slabs. It would also be subjected to TDS. 

Also Read: What Happens On Surrendering A Ulip

Poor Fund Performance Leading To An Exit 

You might be dissatisfied with the returns on your ULIP and get tempted to change or switch to a newer fund. However, it is not a good idea as there are various factors such as the extent of life insurance cover and the cost of investment that you should consider before switching. It would be best to stick to your initial investment as you might get your value for money. Changing funds or exiting might do more harm than good. Exiting can be a costly affair, and you should remember that ULIPs are supposed to give you a return in the long run, not in the immediate future. 

Also Read: Should You Buy Ulip? Find Out

Minimum Tenure For Investing
ULIP allows you to choose the tenure you want to invest in according to your goal. Some policies often invest a small or limited amount now and enjoy the benefits till a later time. 

Premature Withdrawals

Premature withdrawals are allowed on the completion of these three conditions: 

  1. You must be at least 18 years of age
  2. You should have completed your lock-in period 
  3. You have paid all the due premiums

Why Shouldn't You Withdraw? 

  1. A major chunk of ULIP charges is paid in the first five years.
  2. You will not get any loyalty additions if you exit at the end of your lock-in. 

ULIP Plans have only one uncertainty, and that is the fund's performance. It might be possible that the fund doesn't perform as well as expected. If you exit in such a scenario, you lose out on a lot of money. Your returns can be pretty low if the market dips if you have purchased an equity-oriented ULIP investment. It would be best if you always kept holding when the market goes through a bull run as well. You will see a lot of profits if you stay invested in the long run. 

You should ensure that you do not miss your financial goal by exiting at the end of your lock-in. You should revisit your financial plan and see whether you should stay invested or is it more beneficial to exit at the end of the lock-in period. 

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