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ULIP policy lock-in period refers to the duration for which you are not allowed to withdraw your accumulated funds. It allows policyholders to stay invested for the long term, ensuring higher returns by tiding through the short-term market fluctuations.
ULIP, or Unit-Linked Insurance Plan, is one of the most popular life insurance covers that offers the benefits of both insurance and investment. It allows you to invest in various investment instruments to help you achieve your financial goals while providing you with life insurance coverage.
When purchasing a ULIP policy for the first time, you will come across the term “ULIP lock-in period” quite often. If you are wondering what it means, we have got you covered.
In this blog, we will discuss everything you need to know about the ULIP policy lock-in period.
What is the ULIP Lock-in Period?
As the name suggests, the ULIP lock-in period is the pre-specified time frame during which you are not allowed to withdraw your funds. Note that the minimum lock-in period for ULIP policies is 5 years. It means you can not withdraw your accumulated funds before completing five years of investment.
Significance of ULIP Lock-in Period
The lock-in period in insurance plays a very important role. It allows you to stay invested and generate higher profits. Below are the main benefits of the ULIP policy lock-in period
The Longer You Stay Invested, The Higher Returns2 You Earn
Experienced investors from all over the world believe that investing for a longer term is the key to gaining higher returns2 from investment instruments.
The five-year lock-in period in ULIP provides the fund manager with enough time to make investment strategies and implement them to churn better returns.
This lock-in period prevents you from withdrawing funds again and again without giving them adequate time to grow.
Higher Charges During Initial Years
When you purchase a ULIP policy, it comes with multiple charges. These include premium allocation charges, fund manager fees, mortality charges, policy administration fees, etc.
Generally, these charges are higher during the first few years, which reduces the net returns in the initial period.
After five years of lock-in period, these charges become lower, increasing your annual returns.
While the ULIP lock-in period may sound like a foundation at first, it aims to help you generate higher returns.
Can You Cancel a ULIP Policy During Its Lock-in Period?
As mentioned earlier, you can not withdraw your accumulated ULIP funds during its lock-in period. However, if you are facing a financial burden or the ULIP policy is not aligning with your goals, you can choose to cancel or surrender it.
Here is what happens when you cancel your ULIP policy during its lock-in period of five or more years:
- You need to pay the surrender charges levied by your insurance provider. These are the charges for cancelling the policy during its lock-in time frame.
- You may cancel your ULIP policy during its lock-in period. However, your money will only be returned after the completion of five years.
- Your fund value will be transferred to a different account known as a DP fund.
- After the end of your lock-in period, the total money will be transferred to your linked bank account.
Should You Exit Your ULIP Policy After its Lock-in Period?
ULIPs are considered reliable long-term investment options that help you reap desired returns after some years of investment.
As mentioned above, during the initial years of investment, the policy management charges of ULIP are very high, which tends to reduce the overall profits. However, once the policy completes its lock-in period, these charges start decreasing, and your investments finally start generating better returns.
While it can be intimidating to withdraw your accumulated ULIP fund as soon as your policy completes its lock-in frame, it is advised to stay invested to earn desired returns.
ULIPs and other long-term investment policies work on the “purchase and forget” rule. It means to reap the most benefits; you should forget about them for a few years after parking your money in them.
In essence, if you want to gain better returns from your investment in a ULIP policy, stay invested even after the lock-in period.
Final Thoughts
ULIPs are one of the highly sought-after investment options that offer investors the best of both worlds.
A ULIP policy not only allows you to generate good returns from your hard-earned money but also provides you with life insurance coverage that secures the financial future of your dependents.
As mentioned in the blog, ULIPs come with a lock-in period during which your investment stays locked for a period of a minimum of five years. You can not withdraw your money during this time.
That’s all about the ULIP lock-in period in insurance. We hope it helps you in making the right decision.
