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


A lock-in period can be a stipulated time frame when you cannot withdraw your invested money. The lock-in period can be five years under a Unit Linked Insurance Plan (ULIP). During the ongoing tenure of the ULIP policy, your insurer might not allow you to discontinue or surrender the policy. After completing 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, etc. However, if you surrender your ULIP policy before completing 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:


You might fail to generate wealth.

A ULIP plan is a unique financial product that 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 ample time to generate wealth by the time you retire. For instance, if you start investing Rs. 5,000 every month for 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. Simply put, the higher the lock-in period, the higher your corpus.

You might have to pay high ULIP charges.

Under a ULIP policy, you might find the four types of ULIP charges. A ULIP plan typically includes a policy administration charge, premium allocation charge, fund management charge, and mortality charge. Such amounts are deducted through either cancellation of a unit or adjusted in the Net Asset Value (NAV). Typically, these ULIP charges can be higher initially for over a year. Suppose you discontinue the ULIP policy before completing the lock-in period. In that case, you might have to pay the high surrender charges and wait to obtain your invested money until five years. Since the costs 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.

You might be unable to reap ULIP benefits.

A ULIP policy is a financial product that can aim for your betterment. Hence, it can offer many benefits during the ongoing tenure of the ULIP policy. Long-term investment’s primary advantages are providing high returns and applicable bonuses such as loyalty additions. Moreover, you can switch from one fund to the other over the due course of the ULIP policy. You can switch to equity funds if the market is in good condition. 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 lets you make the most of a ULIP investment and 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 choosing a ULIP policy, see that your project aligns with your goals. If you cannot find the right ULIP plan for you, you should consult a financial expert to fasten the selection process.