Withdrawing Funds from ULIPs
1. Lock-in Period in ULIPs: ULIPs impose a mandatory lock-in period of 5 years, during which partial withdrawals are prohibited. Withdrawal of funds before the conclusion of the lock-in period is not permissible. The lock-in period safeguards the investment commitment for a specific duration, promoting a disciplined and long-term approach to ULIPs.
2. Partial Withdrawals After Lock-in Period: After the lock-in period, ULIP holders can make partial withdrawals. The minimum withdrawal amount typically ranges from ₹1,000 to ₹2,000, depending on policy terms. Withdrawals are capped at approximately 25% of the fund’s value, provided one year’s premium remains in the fund.
3. Impact on Sum Assured and Premium Payments: Withdrawals from ULIPs result in a temporary reduction in the sum assured for two years. Subsequently, the sum assured automatically reverts to its original amount. Continuous premium payments are required to be eligible for partial withdrawals.
4. Taxation of Withdrawals: Amounts withdrawn from ULIPs after completing the lock-in period enjoy tax-exempt status. This tax benefit provides an avenue for utilizing accumulated funds in ULIPs to fulfill immediate life goals. Tax-exempt withdrawals after the lock-in period enhance the efficiency of ULIPs as a financial tool, allowing investors to access funds without tax implications.
5. Emergency Withdrawals and Nominee Payouts: In cases of emergencies, partial withdrawals are permitted. However, the reduced sum assured due to prior withdrawals will be paid to the nominee. Emergency withdrawals offer a safety net but come with the consideration of potential reductions in the sum assured, impacting the payout to the nominee.
6. Surrender or Discontinuation Implications: Even in the event of surrender or discontinuation of the ULIP policy, access to funds remains restricted until the conclusion of the lock-in period. Surrendering or discontinuing the policy does not grant immediate access to funds, reinforcing the commitment of the lock-in period and its impact on liquidity.