How to Withdraw Funds from Your ULIP Before Maturity

Unit Linked Insurance Plans (ULIPs) are a popular investment option that combines insurance with market-linked returns. While they are designed for long-term wealth creation, financial emergencies or changing investment goals may lead investors to withdraw funds before maturity. However, ULIP withdrawals are subject to specific rules, charges, and tax implications. Understanding the withdrawal process, eligibility criteria, and alternative options can help investors make informed decisions. In this article, we explore how to withdraw funds from ULIPs before maturity, the applicable conditions, and the ideal strategies to optimise ULIP returns while maintaining financial stability.
 

Can you withdraw money from ULIP before maturity?

Yes, ULIPs allow partial withdrawals after the mandatory lock-in period of five years. However, conditions and charges may apply based on the policy terms.

Conditions for withdrawing funds before maturity:
 

• Lock-in period completion – Withdrawals are only permitted after five years from the policy start date.
• Minimum balance requirement – Some insurers mandate maintaining a minimum fund balance post-withdrawal.
• Maximum withdrawal limit – Policyholders can typically withdraw up to 20-25% of the fund value, depending on the insurer.
• Impact on sum assured – Withdrawals may reduce the death benefit sum assured.
• Age restrictions – Some policies impose age-based limitations on withdrawals.
• Frequency of withdrawals – Insurers may restrict the number of free withdrawals allowed per policy term.

Key eligibility requirements:
 

• Completion of lock-in period – ULIP withdrawals are only allowed post the five-year lock-in.
• Policyholder’s age – Some policies restrict withdrawals based on the policyholder’s age.
• Minimum fund value – A minimum balance should remain in the policy post-withdrawal.
• Policy type and insurer guidelines – Withdrawal limits and conditions vary by policy type and insurer.
• Premium payment compliance – The policy should be active, with regular premium payments.

Steps to withdraw funds from ULIPs

The withdrawal process varies by insurer, but general steps remain consistent across policies.
 

Steps to follow:
 

• Check policy terms – Review your insurer’s ULIP withdrawal conditions.
• Complete withdrawal form – Fill out the necessary withdrawal request form.
• Provide required documents – Submit identity proof, policy documents, and bank details.
• Await processing – Insurers typically process requests within 5-7 working days.
• Confirm fund credit – Ensure funds are credited to your registered bank account.

Charges on ULIP withdrawals:

• Fund management charges – A percentage of the fund value is deducted periodically for professional management of your investments.
• Partial withdrawal charges – Some policies levy a fixed charge per withdrawal, though many modern online plans offer a limited number of free withdrawals.
• Mortality charge adjustment – Your sum assured may be reduced post-withdrawal, as the payout can be deducted from the death benefit for a specific period (usually two years).
• Discontinuation charges – If the policy is surrendered or premiums are stopped before the five-year lock-in period, significant charges apply and the funds move to a Discontinued Policy Fund.

Tax implications

• Tax-exempt withdrawals – ULIP withdrawals are tax-exempt under Section 10(10D) if the annual premium is within 10% of the sum assured.
• Tax on high-premium ULIPs – For policies issued after February 1, 2021, if the total annual premium exceeds Rs. 2.5 lakh, the gains are taxed as Capital Gains (currently 12.5% for LTCG over Rs. 1.25 lakh as of 2026).
• Tax deduction at source (TDS) – If the policy is not exempt under Section 10(10D), TDS is typically deducted at 5% on the "net income" portion (gains) for payouts exceeding Rs. 1 lakh.
   

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Better alternatives to ULIP withdrawals:
 

• Loan against ULIP – Borrow funds by pledging your policy as collateral after the five-year lock-in period to retain investment benefits and life cover.
• Fund switch – Reallocate investments within ULIPs to better-performing funds or safer debt instruments based on market conditions.
• Top-up premiums – Invest additional funds into your existing policy rather than withdrawing, helping to enhance the overall corpus and compounding.
• Emergency fund utilisation – Use separate savings or contingency funds for short-term needs to avoid disrupting your long-term wealth growth.
• Policy surrender – As a last resort, consider surrendering the policy after the lock-in period, keeping in mind that this terminates your insurance coverage and may incur penalties.

Conclusion

While ULIP withdrawals before maturity are possible, they should be considered carefully to avoid financial setbacks. The five-year ULIP lock-in period, potential charges, and tax implications make early withdrawals less attractive. Exploring alternative options such as loans, fund switching, or top-up premiums can help maintain long-term investment growth. By making well-informed decisions, investors can maximise their financial gains and ensure continued policy benefits.

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