Unit linked insurance plans come with a lock-in period of five years. A lock-in period is the time-frame, i.e, five years, when the plan holder can’t withdraw or liquidate the value of the fund that has been accumulated. Before 2010, this period was three years. The Insurance Regulatory and Development Authority of India (IRDAI) brought in changes to the rules, and hence the extension.
Option of withdrawals
A majority of ULIP s don’t offer partial withdrawal till the end of the lock-in period of five years. At any time after the ULIP lock in period, partial withdrawals can be made. In some plans, unlimited free partial withdrawals can be made after the lock-in period. Some options allow policy holders to withdraw a specific amount on a month-on-month basis during the tenure of the policy.
Some plans offer the option of partial withdrawals after three years of plan tenure. However, these withdrawals come with charges in most cases, depending on the plan chosen.
Discontinuance before ULIP lock in period
In case there is a discontinuance or surrender of the policy before the completion of five years, the insurer transfer the fund value to a fund earmarked for discontinued policy, also called DP fund. Surrender or discontinuance charges will be deducted as well, depending on the terms and conditions of different ULIPs. Also, the money is returned to the plan holder only after the lock-in period ends. The money that is in the DP fund gains a 4 per cent interest rate (minimum guaranteed) till the end of the lock-in period. This interest rate is subject to change, on the basis of the regulatory authority’s policies.
In case of the death of the policy holder in this period, the DP fund proceeds go to the nominee.
Surrendering the policy after lock-in period would mean the person is paid the fund value at the NAV (net asset value) that prevails at that point in time. Discontinuation charges may not apply in such cases.
As they say, God is in the details. Just because a person discontinues a policy doesn’t mean the story ends there. There’s a revival period of two years, when an investor can choose to revive the policy. The two years are counted from the date of the first unpaid premium that was due. The policy is revived after all the due premiums are paid any applicable charges levied. In case the two years also expire, it is deemed that the plan is terminated.
In conclusion, smart investors who are looking at financial discipline know that ULIP lock in period is a blessing because it allows them to grow their wealth in a substantial manner over a prolonged period. The five years allow policyholders to stay in control of the funds into which their premiums are being invested. Transparency by way of frequent updates about investments in funds, number of units and their value is a boon for someone who buys and tracks investments online.
A hands-on investor will find ULIPs attractive, simply because of the flexibility to choose from equities, debt or hybrid funds based on his/her risk profile.
Investing in a ULIP such as the Future Generali Big Dreams Plan would allow a person to choose from three options: Wealth Creation, Retire Smart and Dream Protect, depending on their financial goals. Additional protection for family or loved ones by way of riders that cover accidental death, critical illness or total disability are a bonus for the wise investor.