Why it isn’t a great idea to surrender ULIP after the lock-in period

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A lock-in period can be a stipulated time frame during which you might be unable to withdraw your invested money. Under a Unit Linked Insurance Plan (ULIP), the lock-in period can be five years. During the on-going tenure of the ULIP policy, your insurer might not allow you to discontinue or surrender the policy. After the completion of the lock-in period, you can liquidate your assets effortlessly.

A ULIP policy is a long-term investment. Due to the long-term lock-in period, you can meet your life goals such as purchasing a new house or a car, starting a new business, and so forth. However, if you surrender your ULIP policy before the completion of the lock-in period, you might be unable to reap the benefits. Let’s take a look below to understand the ULIP benefits of staying invested for a long time:

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  1. You might fail to generate wealth

A ULIP plan is a unique financial product, which can let you accumulate a substantial corpus. However, you can grow your invested capital if you stay invested beyond five years. Typically, you should park your funds in a ULIP policy at a young age. When you invest in a ULIP policy at a young age, you can have an ample amount of time in your hands to generate wealth by the time you retire. For instance, if you start investing Rs. 5,000 every month at 30 years, you can build a corpus, which can be worth Rs. 75,00,000. With a higher corpus, you can realize your life goals with ease. In simple terms, the higher the lock-in period, the higher your corpus.

  1. You might have to pay high ULIP charges

Under a ULIP policy, you might find the four most types of ULIP charges. Typically, a ULIP plan might include policy administration charge, premium allocation charge, fund management charge, and mortality charge. Such charges are deducted through either cancellation of a unit or can be adjusted in the Net Asset Value (NAV). Typically, these ULIP charges can be higher initially for over a year. If you discontinue the ULIP policy before the completion of the lock-in period, you might have to pay the high surrender charges and wait to obtain your invested money until 5 years. Since the charges can reduce after a year, you should stay invested in a ULIP policy to ensure that you are not stuck with the high payment of ULIP charges.

  1. You might be unable to reap ULIP benefits

A ULIP policy is a financial product, which can aim for your betterment. Hence, it can offer many benefits during the on-going tenure of the ULIP policy. The primary benefits of a long-term investment can be the provision of high returns as well as applicable bonuses such as loyalty additions. Moreover, you can switch from one fund to the other over the due course of the ULIP policy. If the market is in good condition, you can switch to equity funds. However, you should opt for debt funds if the market is down.

In a nutshell, the longer lock-in period of a ULIP policy is an advantage in itself. It not only lets you make the most of a ULIP investment but also allows you to meet your life goals. Before investing in a ULIP plan, you should compare various options, consider your financial needs, and select a plan accordingly. After you select a ULIP policy, see to it that your plan aligns with your goals. If you are unable to find the right ULIP plan for you, you should consult a financial expert to fasten the process of selection.