What Are The Things To Know Before Discontinuing A ULIP?

IndiaFirst Life
• 16 Aug, 2024

Unit Linked Insurance Plans (ULIPs) combine the benefits of investment and insurance, making them a popular choice for many investors. At times, a policyholder may consider discontinuing one. Before making such a decision, it's crucial to understand the implications and features of a ULIP to ensure you make an informed choice.

Understanding the Basics of ULIPs

It is a type of insurance policy offering both life coverage and investment options. The premiums paid are partly used for life insurance coverage and partly invested in various funds, such as equity, debt, or balanced funds, according to the policyholder's preference.

Some of the key features of ULIPs include:

Offering both insurance and investment.
Allowing switching between different funds.
Exemptions of tax for old regime taxpayers (on premiums as well as benefits).

Implications of Discontinuing a ULIP

Policyholders can choose to discontinue a ULIP plan for multiple reasons. However, before you choose to do so, it is important to consider two things – whether discontinuing the policy is the best option for your ‘why’ and the implications of doing so.

Discontinuing a ULIP policy can have several financial implications.

Surrender Charges

Most ULIPs have surrender charges if you discontinue the policy before the lock-in period of five years. These charges can significantly reduce the amount you receive upon surrender.

Loss of ULIP Benefits

By discontinuing the policy, you lose the dual benefits of insurance and investment. Additionally, you might miss out on potential market gains if the funds perform well in the future.

Tax Implications**

If you surrender your ULIP before five years, the tax benefits claimed under Section 80C will be reversed, and you may have to pay tax on the surrendered amount.

Alternatives to Discontinuing a ULIP

If you have assessed your reasons carefully and understood the implications, pause to consider the alternatives. Based on your ‘why’, you may find one of the following options suitable.

Fund Switching: Utilise the flexibility feature of a ULIP plan to switch between different funds instead of discontinuing.
Partial Withdrawal: Some ULIPs allow partial withdrawals after the lock-in period, providing liquidity without surrendering the entire policy.
Consulting a Financial Advisor: Seek professional advice to understand the best course of action based on your financial situation and goals.

Discontinuing a ULIP is a significant decision that should not be taken lightly. Taking the time to thoroughly assess your ULIP and its performance can help you maximise the benefits and avoid unnecessary financial setbacks.

** Tax exemptions are as per applicable tax laws from time to time.

Disclaimers:

Unit Linked Insurance Products are different from the traditional insurance products and are subject to risk factors. The Premium paid in unit-linked life insurance policies are subject to investment risks associated with capital markets and NAVs of the units may go up or down, based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. IndiaFirst Life Insurance Company Limited is only name of the Insurance Company and does not in any way indicate the quality of the contract, its future prospects, or returns. Please know the associated risks and the applicable charges from your Insurance Agent or the Intermediary or policy document issued by the Insurance Company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale.

by IndiaFirst Life
Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 754.37 crore, is one of the fastest growing private life insurers in India in terms of New Business IRP in Fiscal 2023. Our key differentiators are our simple, easy-to-understand products that are optimally priced. As of Sept 30, 2023, we offered 30 retail products, 13 group products along with six riders (across retail and group portfolios), along with policies under the PMJJBY scheme, catering to protection, savings, health and retirement needs of our customers, leveraging multiple distribution capabilities and augmenting various investment options. In all propositions under the categories of Participating Plans, Non-Participating Savings Plans, Non-Participating Protection Plans, Unit Linked Insurance Plans, Group Protection Plans, Corporate Funds Plans, Riders & PMJJBY form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and optimally priced with a developed comprehensive risk management framework/policy.