What happens if you are unable to pay your ULIP premiums?

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A Unit Linked Insurance Plan (ULIP) was launched in the market, with the main objective of family protection. Since a major proportion of your invested capital goes towards the provision of life coverage for the financial security of your loved ones, your insurer can charge a premium in return for the coverage. Typically, a premium is an essential component of every insurance policy. Since a ULIP plan is a mix of insurance and investment, you should regularly pay the premiums to your insurance providers.

Under ULIP insurance, your nominees can receive a death pay-out in your absence to maintain their standard of living. If you ignore the premium payment, your insurance might not provide you with any benefits, which are applicable under the ULIP policy. The premiums are typically directed into two directions. Therefore, let’s first understand the working of ULIP premiums:

1. Coverage

A large proportion of the premium that you pay is directed towards the life cover that can be provided to your beneficiaries after your demise.

2. Funds

A ULIP policy can allow you to select between equity funds and debt funds. Hence, the other half of the premium is channelled towards the management of ULIP funds.

When you choose a ULIP policy, see to it that you are able to afford the premiums within the selected time frame. As a policyholder, you can decide to pay the premiums quarterly, monthly, half-yearly, or annually. However, there can be times when you might be unable to pay the ULIP premiums during an unfortunate event such as physical disability, critical illness, loss of income, and so on.

When you are unable to make the premium payment within the selected frequency, your insurer might offer you a grace period. Under a ULIP policy, the grace period can be of 30 days, during which you should repay the unpaid premium amount without fail. If you delay the premium payment within those 30 days, your insurance company can cease the ULIP benefits.

Apart from the policy termination, the impacts of non-payment of premiums can be large. Therefore, let’s understand what more can happen when you have difficulty in the payment of the premium of your ULIP policy:

  • You might be unable to manage your expenses

When you stop paying the premium after a year from the time of purchase, you might receive the money after specific deductions such as fund management charges, annual charges, and so forth post the completion of the lock-in period of the ULIP policy.

  • You might not receive the pre-dated Net Asset Value (NAV)

When you fail to make the premium payment after the first year of your ULIP policy and withdraw your funds after the lock-in period, you might not get paid based on the ULIP NAV of the year. As a policy, your insurer would pay your money based on the NAV of the year when your premium payment stops.

  • You might not be eligible to withdraw your invested capital

Rather than charging you with a penalty, your insurer would not allow you to withdraw your money until the next 3 years if your ULIP policy has lapsed.

  • You might lose all your accumulated money

If you stop the premium payment before a year of the completion of the ULIP policy tenure, you might end up losing all your invested money.

  • Your nominees might obtain a minimal death pay-out

The premium payments can be necessary to receive death benefits. However, if you haven’t made the premium payment, your nominees would receive a relatively low fund value after your demise.

As highlighted above, premiums can be an inevitable part of your ULIP insurance. Therefore, see to it that you make timely payment of premium to continue to reap the ULIP benefits until the tenure of the policy. In case you have missed the premium payment and, your policy has lapsed, see to it that you renew your ULIP policy. If you don’t have a ULIP policy, you might be unable to secure your family financially from the uncertainties of life.