How Does Partial Withdrawal in ULIPs Work?
Unit-Linked Life Insurance Plans (ULIPs) are one of the best ways to get the dual benefit of insurance coverage and market-linked returns. With ULIP policies, you get to ensure your loved ones will be covered if something happens to you, and you get to build wealth with market investments.
Most insurers offer features like loyalty additions with their ULIP plans to reward their customers. Along with this, insurers like Tata AIA also offer ULIP calculators on their website to help customers purchase the right Tata AIA ULIP for themselves. Features like these make ULIPs optimal choices among investors. However, one of the unique features of a ULIP plan is the partial withdrawal feature.
What is Partial Withdrawal in ULIPs?
Partial withdrawals in ULIPs is a feature offered in ULIPs through which you can withdraw a specific percentage of the fund value once the lock-in period is over. With the flexibility to withdraw a small portion of the fund value, you can take care of financial emergencies or other situations like your child’s higher education, critical illness, buying a new piece of land, etc. In addition, the amount withdrawn as partial withdrawal from a ULIP plan is exempted from taxation.
The IRDAI (Insurance Regulatory and Development Authority of India) launched a new set of rules for insurers in India. As per the rules released by the IRDAI, if you own a ULIP plan, you can apply for partial withdrawals thrice once the lock-in period is over.
Therefore, you can avail of the facility of partial withdrawals only three times during your policy’s tenure. In addition, you should be at least 18 years old to avail the facility of the ULIP withdrawals. Along with this, the premium payment for the plan must be on track, and the policy should be active to carry out a partial withdrawal.
Lock-In period in ULIPs
The lock-in period for the ULIP policy is five years. It is related to the amount invested in the funds selected. This period is designed to improve the value of your investment. Generally, your fund’s value starts rising after holding the policy active for the initial few years. Along with this, a longer investment tenure means better returns for you. This is because your fund will hedge different market risks and offer you great returns.
However, you won’t have access to use the partial withdrawal feature while the lock-in period of the policy is active. A lock-in period will hold the investment in the market, even if you wish to discontinue or surrender your ULIP. You will be able to access your ULIP investment only when the lock-in period is over. If you surrender your plan midway during the lock-in period, you will lose the insurance coverage, and you will get access to the funds only when the lock-in period is over.
Amount You Can Withdraw Through Partial Withdrawals
With ULIPs, you can withdraw around ₹1000-₹2000 as the minimum amount (depending upon the policy) and 25% of your fund value as a partial withdrawal. However, to withdraw 25% of your fund’s value, the fund must hold at least one year’s premium amount in the fund.
Does Partial Withdrawal in ULIPs Affect the Sum Assured?
Yes, when you carry out a partial withdrawal, the fund’s value and the sum assured will come down based on the amount you have deducted. However, the reduction in the sum assured is only for two years. Once two years have passed after your partial withdrawal, the sum assured amount will be restored to the original amount.
Therefore, partial withdrawals will not impact your ULIP policy heavily in the long term. However, the sum assured amount’s restoration would work if you do not make additional withdrawals after the initial withdrawal in the two years. The sum assured for the ULIP will be impacted if the policyholder passes away during the two years after the first partial withdrawal. Your beneficiaries will receive the reduced sum assured based on the restored amount.
Partial withdrawals in ULIPs allow you to withdraw a specific percentage of the fund’s value. Partial withdrawals are one of the best ways to deal with unprecedented financial emergencies. However, to partially withdraw a certain amount, you must ensure that the lock-in period is over, the policy is active, and you have paid all the premiums on time.