Should You Exit a ULIP After a Lock-in Period or Continue Till the End?

With the increasing financial literacy in the country, a large number of citizens are willing to invest their hard-earned money to avail high returns. A Unit Linked Insurance Plan or ULIPs is a contemporary investment that has gained massive popularity in recent times. It is a product offered by insurance companies that provides both insurance and investment under a single integrated plan. Therefore, a portion of the premium paid by the policyholder is utilized to provide insurance coverage and the remaining portion is invested in equity as per the policyholder’s choice. However, it is to be noted that ULIPs come with a lock-in-period of 5 years. This means if the policyholders choose to discontinue the policy during the lock-in-period, they won’t receive any liquidity or payout.

Since a unit linked insurance plan is a long term investment plan that focuses on goal-based investing, it is always recommended to continue with the policy even after the lock-in-period ends.

 Below are some of the reasons why you should not exit ULIP once the lock-in-period ends.

High charges in the initial years

When investing in ULIPs, note that it involves various types of charges such as premium allocation charges, fund management fees, mortality charges and surrender charges among many others. Therefore, it takes a lot of time to recover these charges and get a potential return on investment.  By exiting your policy just after the end of the lock-in period, you may not be able to reap the real benefits. You might end up getting comparatively lower returns if you exit ULIP just after the end of its lock-in-period.

Continuing the ULIP to gain its various benefits

Unit linked insurance plan is a long-term investment game and hence, you should stay invested for a long period for higher returns and other benefits. These investments are purely related to market fluctuations. Therefore, if the market is underperforming, instead of withdrawing, you should stick around for some time until the market bounces back.

In case you are facing a financial crunch and require funds immediately, you can consider partial withdrawal to meet your financial requirements. Continuing the ULIP till maturity can give your money a chance to flourish.

Below are some of the major advantages of a long-term investment in ULIP:

  • ULIP returns can help you meet your long-term goals like buying a house, a new car, establishing a start-up, etc. Your money will grow faster as compared to keeping it deposited in savings accounts or bank fixed deposits.
  • Since it is a life insurance product, it offers several tax rebates. Under section 80C of the Income Tax Act, you can avail tax benefits on the premium paid. Moreover, all payouts received are exempt under section 10D of the Income Tax Act, 1961.

Now that you are well aware of all benefits of investing in ULIPs for a longer duration, ensure that you make the most of it to reap higher returns in the long run.

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