Widely read:
Unit-linked insurance plans (ULIPs) have a lock-in period of five years. They are generally long-term contracts of at least 10 years or more. Irrespective of whatever duration one may have chosen while buying the policy, it is possible to close and surrender the policy midway.
Charges and fees in ULIPs
When we invest in a ULIP, a lot of deductions are made. A part of the premium is diverted to provide a life cover, and some part of it is also deducted in the name of premium allocation charges, policy administration fees, fund management fees, etc. While some of the charges are deducted upfront, some are deducted in the form of 'units' of the (ULIP) fund that the investor holds. Nevertheless, these charges are quite steep in the initial few years.
Only the residual money stays invested in the chosen fund whose value changes in tandem with its performance and the same is paid to the investor upon surrendering after five years. One should not confuse it to be equivalent to at least the total amount that he/she has paid as premium during the five years. It may be less than that.
Penalty on surrendering a ULIP after five years
Generally, if a ULIP is surrendered after five years, no additional charges or penalty is levied on exit. The investor gets money equivalent to whatever the value of the fund is. The amount received on surrendering a ULIP after five years is tax-free.
While discontinuing a ULIP after five years doesn't have any major implications, that's not the case if one decides to surrender it before completing the mandatory lock-in period of five years. Here are some things you should know if you want to surrender a ULIP in the lock-in period.
Suggested read: Say no to endowment policies and ULIPs
