We tend to keep insurance and investments separate so that they are easily manageable. But what if we tell you that there is an insurance instrument that allows you to enjoy the benefits of both – insurance and investment – under a single policy? That is right! ULIP investments are known to offer dual benefits and have become an increasingly popular insurance product in the market.

So, let us understand ULIPs a little more in-depth. The ULIP meaning is Unit Linked Insurance Plans. An insurance product offers you the benefits of both life insurance coverage as well as wealth creation over time.

Ideally, ULIPs have a lock-in period of 3-5 years, depending on your insurer. But have you ever wondered what happens if you stop paying ULIP premiums before the completion of the lock-in period? Well, we are here to discuss the same.

Many a time, due to financial instability, you might be unable to pay the ULIP premiums. On the other hand, you just realised that the policy serves you no purpose in accomplishing your financial goals. However, if you choose to stop paying ULIP premium before the three-year lock-in period, you will have two options –

1. You can either revive the policy
2. You can withdraw from the plan without life insurance cover

The consequences of these are explained as follows.

1. No penal measure – Know that your insurer will not charge any penalties in case you are unable to pay the ULIP premiums. However, you cannot withdraw the money from the plan until the three-year lock-in period is over.
2. Loss – In case you do not pay the ULIP premiums after the policy completes a year, you will lose the entire capital amount that you have invested in the plan so far.
3. Notice – In case you no longer pay the ULIP premiums, you will receive a notice within 15 days of completing the grace period. This notice serves as an option whether you want to revive the ULIP investment or not. You have to convey your policy revival decision to the insurer within 30 days of this notice.
4. Final payout – By this time, you have decided to discontinue the ULIP investment even after receiving the notice for revival from the insurer. Know that you will not receive the policy payout unless the lock-in period is over. Also, before you receive the payout, charges such as fund management charges, annual charges, and surrender charges are deducted from it. So, the amount you receive as a final payout is quite insufficient.

The Concept of ULIP Lock-In Period

A ULIP lock-in period is nothing but the period wherein you cannot withdraw or make changes to the plan. More so, even if you surrender the policy and discontinue paying the premiums, you will not receive the final payout until the lock-in period is over.

The lock-in period for a ULIP is 5 years. Having said this, it is recommended not to discontinue a ULIP investment – be it before or after the lock-in period – for better returns. 

A part of the premiums paid towards the plan is used to invest in funds of your choice. If you are unsatisfied with the fund performance, you can always use the fund switching option that is available in ULIPs. With this option, you can make necessary changes in the investment portfolio and gain reasonable returns in the near future.

So, if you are looking for an insurance instrument that offers not only life insurance cover but also an option of building wealth in the long run, ULIP is the best choice for you. A long-term ULIP investment performs the best. Hence, existing from a ULIP investment immediately after buying it is not a sound financial decision.

Hemant Kumar