What is Partial Withdrawal in ULIPs?

ULIPs are one of the popular instruments for investment, especially among young investors. One of the reasons behind their preference is their contribution towards wealth gain and the offering of life insurance cover to your loved ones within the same policy. However, for many policyholders, there could be instances where they require a substantial amount from their ULIP funds to take care of immediate expenses or for any emergencies. In such scenarios, you have the option of opting for a partial withdrawal from your ULIP plan. Read on to understand more about what a ULIP plan and a partial withdrawal is.

What is ULIP plan?

A unit linked insurance plan is a type of life insurance policy which has the dual benefit of investment and insurance. Investments are done in equity and debt funds, as per the liking of the policyholder. These investments offer low to high returns to the policyholder. Life insurance over is provided to the nominee of the insured in the event of their untimely demise. The amount for investment and life cover comes from the premium paid for the policy. It gets split into two.

What is partial withdrawal?

Some ULIP policyholders might need to take care of expenses related to a medical procedure or maybe developing a property. The expense could be anything and could require immediate funds. In such cases, the policyholder might go for a partial withdrawal from their ULIP funds. As per the new rules set by the IRDAI, you are allowed to make 3 partial withdrawals from your ULIP after the lock-in period ends, which is of 5 years.

If you want to make a partial withdrawal before the lock-in period ends, you will not be able to do so. Withdrawals during the lock-in period are not allowed, even if you have paid the annual premium or are willing to surrender your policy. Partial withdrawals can be done only after the end of the lock-in period.

Who can opt for partial withdrawal?

As a partial withdrawal is allowed only after 5 years, policyholders who have paid all the premiums are eligible for partial withdrawals. Paying your premium and then wanting to surrender your ULIP policy will not make your eligible for partial withdrawal. Also, even if you do surrender your policy, you will not be able to get the money until the end of the lock-in period.

Should you do a partial withdrawal?

While it is usually advised to not go for a partial withdrawal, there could be circumstances where you could require funds urgently. In such situations, partial withdrawal could help you in taking care of those expenses. Coming to how much you can withdraw, the maximum amount that you can withdraw is 25% of the fund’s value.

One thing that you should keep in mind while opting for a partial withdrawal, is that it does have an impact on the value of your fund. It also impacts your sum assured. As the amount is being withdrawn from your fund, you will have to reinvest money in funds to be able to regain that much money. However, the amount withdrawn gets restored in the sum assured after 2 years. This restoration is only applicable if another withdrawal is not initiated during the 2-year period after the 1st withdrawal. Also, you are required to pay your premiums in order to be eligible for restoration of the premium.

What is the benefit of partial withdrawal?

One of the main benefits is that it does not impact your ULIP plans returns; given that you meet the criteria. Secondly, it helps in taking care of immediate expenses. This means that you will not have to rely on other sources to be able to take care of those expenses. If the policyholder passes away due to unfortunate circumstances after the withdrawal, their loved ones will get the reduced sum assured. The only downside of partial withdrawal is the reduction in the fund value. As an investor, it could take some time to be able to regain the same fund value before withdrawal.

So, if you are planning on making a partial withdrawal from your ULIP plan, do keep the aforementioned things in mind. You can take the assistance of a ULIP calculator from any insurer’s website if you are planning on buying a ULIP policy.

Author: Jay A. Lovell