ULIPs (Unit Linked Insurance Plans) are designed to blend life insurance protection with long-term wealth creation. They come with a 5-year lock-in period that encourages disciplined investing. But sometimes, financial needs or shifting goals may push you to consider an early exit.
Exiting before maturity can reduce your fund value due to surrender charges and missed growth potential. The good news? With the right knowledge, you can minimise these impacts.
This article explores the penalties and charges associated with early ULIP exits, the surrender charges involved, the impact on fund value, alternative options, and ways to minimise losses when withdrawing from a ULIP before maturity.
Understanding ULIP lock-in period
ULIPs have a mandatory five-year lock-in period during which policyholders cannot make full withdrawals. This period is enforced to ensure that investors remain committed to long-term wealth creation. Exiting a ULIP before this period results in financial penalties and the amount is transferred to a discontinued policy fund (DPF) with minimal returns.
Key aspects of the ULIP lock-in period:
Mandatory five-year period
Investors cannot withdraw funds fully before five years.
Partial withdrawals
Some ULIPs allow limited withdrawals after the lock-in period under specific conditions.
Discontinued Policy Fund (DPF)
If surrendered early, funds move to DPF, earning minimal returns.
Limited liquidity
Investors must commit to the policy for at least five years to maximise benefits.
