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Investments in ULIP Plans are made to create wealth based on market-linked returns. And it is invested for the long term to ensure maximum benefits. However, for various reasons, we default from staying invested in some scenarios.
Stopping to pay premiums for your ULIP insurance before 3 years can significantly impact your investments and your future financial goals. Here is why you should continue paying your ULIP premium at least for the first 3 years.
Before we get started, let us understand what the ULIP policy means and the associated lock-in period.
What is the Unit Linked Insurance Plan (ULIP Plan)?
The ULIP plan is a comprehensive life insurance policy that utilises one portion of the premium for the life cover and the other in the financial securities for the market-linked returns. It is a flexible product that allows you to choose and invest in fund options based on your risk appetite.
The ULIP insurance plan has a lock-in period of 5 years. After the 5-year lock-in period, partial withdrawals are allowed.
What happens if you Stop Paying Premiums before 3 years for the ULIP Plan?
If you stop paying the premium before 3 years, you may face the following consequences.
Discontinued Fund
If you have not paid the premiums for the ULIP investment, you will receive a grace period of about 30 days. If the premiums still remain unpaid, the fund value, minus the applicable discontinuance charges, will be credited to a discontinued fund. The ULIP plan will remain invested in the discontinued policy fund. However, the life cover and the add-on rider# will cease to provide the applicable benefits.
The proceeds of the discontinued policy fund, the fund value as of the date of discontinuance plus the income earned after the deduction of the applicable fund management charges will be provided to you based on your decisions considering the revival period (explained in the following paragraph). In addition, there will be a minimum guarantee of interest as prescribed by the IRDAI.
Revival Period
The discontinued policies will be provided with a revival period of 3 years from the first date of the unpaid premium. The details regarding the revival period will be communicated to you within 3 months from the first date of the unpaid premium. You can choose to revive the ULIP policy during these 3 years and continue to benefit from the policy.
There are 3 possible scenarios concerning the revival period.
Not reviving within the revival period - Suppose you opt to revive the policy but do not revive it during the revival period. In that case, the proceeds from the discontinued policy fund will be provided to you when the revival period or the lock-in period ends, whichever is later. Therefore, fund management charges will apply to the discontinued fund during this period.
Not reviving the ULIP Policy - Suppose you don't revive it during the revival period and do not intend to do it later, the policy will remain invested in the discontinued fund, and the proceeds will be paid to you at the end of the lock-in period, and the policy shall terminate.
Surrendering the ULIP Plan - You can also choose to surrender the ULIP insurance policy at any time, and the proceeds from the discontinued policy will be provided when the lock-in period ends or on the surrender date, whichever is later.
Single Premium ULIP Plan
If you have purchased the single premium ULIP plan and wish to discontinue within 3 years, you can surrender it at any time. However, the fund value will be credited to the discontinued fund and remain invested. The proceeds will be paid when the lock-in period ends.
Why should you not Discontinue your ULIP Policy in 3 Years?
Here are a few reasons, in addition to the ones we mentioned before, why you should not discontinue your ULIP plan.
Your investment will be credited to a discontinued policy fund, and the fund management charges will be applicable.
The proceeds from the discontinued policy fund will be provided when the revival period or the lock-in period ends, whichever is applicable.
ULIP Insurance Benefits in the Long Term
It is always highly recommended that you invest in a ULIP policy for the long term. When you invest in the ULIP plan for the long term, you can benefit in the following ways:
The investment made in financial securities may significantly appreciate in the long term.
You can choose the fund option and switch between the options during the policy term in a ULIP plan and customise it based on your requirements.
The premium paid and the applicable maturity benefits will qualify for the tax* deduction and tax* exemption benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
Therefore, for any reason, if you decide to refrain from paying the premium for the long-term investment plans, such as the ULIP policy, within 3 years, you will lose the applicable benefits. You will still be invested with the applicable charges and not receive the funds until the revival period or the lock-in period, whichever is applicable.
Tata AIA Life Insurance Plans provide a wide range of customisable plan options that help you compare, choose, and customise the policy based on your specific need.
You can utilise our Tata AIA ULIP Calculator to make a well-informed decision and buy the best ULIP plan as per your specific requirements.
Conclusion
The ULIP plans have a lock-in period of 5 years. If you stop paying the premiums within the first three years, the fund value will be credited to a discontinued policy fund. However, a revival period of 3 years will be provided to the investor, but the fund management charges will remain applicable during this period. Based on your decision during the revival period, the policy will either be terminated or revived, while the proceeds will be paid when the revival period or the lock-in period ends as applicable. Therefore, staying invested in the ULIP policy long term is essential to ascertain maximum benefits based on the investment.
