Can I cancel my ULIP plan?

ULIP at a Glance

Understanding how to stop life insurance policy begins with knowing how a ULIP plan works. A ULIP (Unit Linked Insurance Plan) is a long-term life insurance product. It gives your life cover and also helps you grow your savings through market investments.

• The premium you pay is divided into two parts:
  • One part gives your life insurance coverage.
  • The other part is invested in market-linked funds (like equity or debt).
  
  
• You can choose your investment type based on your risk level:
  • Equity funds (high risk, possibly high returns)
  • Debt funds (low risk, stable returns)
  • Or a mix of both

• ULIPs have a 5-year lock-in period. During this time, you cannot take out your money.
• After the lock-in period, you can withdraw funds or surrender the policy.
• On maturity, you get the sum assured plus the fund value (if markets perform well).
• Premiums paid towards ULIPs may offer tax benefits under Section 80C (under old tax regime) and Section 10(10D) of the Income Tax Act, 1961.

ULIPs are best when held for 10–20 years. But if you must exit early, it’s good to know the process and impact.

Can You Cancel the ULIP Policy?

Yes, you can cancel a ULIP plan. But before you do, it’s important to know when and how you are cancelling it. The time at which you cancel the policy will decide how much money you get back and when you will receive it.

Let’s understand this in three easy parts:

1. During the Free-Look Period

   
   

   A ULIP purchase allows you to inspect the plan for 30 days before making a final decision about its suitability. The 30 - day evaluation opportunity of insurance policies is termed as a free-look period. During these specific 30 days you have the option to cancel your plan if you dislike it or your decision changes.

   
   
   • The company will cancel the policy.
   • You will get back the money you paid.
   • They may cut small charges like stamp duty or the cost of a medical check-up.
   • This is the best time to cancel because you don’t lose much.
   
   

2. During the Lock-in Period (After 30 Days but Before 5 Years)

   
   

   All ULIP plans come with a 5-year lock-in rule. This means you cannot take your money out fully before 5 years are over. But still, if you want to stop the policy, you can do it.

   
   
   • You can stop paying your premiums.
   • Your money is moved to something called the Discontinued Policy Fund.
   • The money stays there until the 5-year period ends.
   • During this time, it earns interest as per applicable bank rates.
   • You will get your money only after 5 years are completed.
   
   

3. After the Lock-in Period (After 5 Years)

   
   

   Once the 5-year lock-in time is over, cancelling the ULIP plan becomes easier and better.

   
   
   • You can cancel the policy anytime.
   • The company will return your fund value after deducting applicable charges as per policy terms and conditions.
   
   

Is It a Good Idea to Cancel Early?

Most professionals advise against ULIP cancellation during the mandatory lock-in period. The combination of fees and lack of life coverage will cause you to lose your money. The cancellation of your policy results in tax benefits suspension according to Sections 80C and 10(10D).

Review your financial requirements together with the timeline before taking action to terminate life insurance policy. Most people benefit from waiting until the specified lock-in period concludes.

How to Cancel Your ULIP?

If you've made your decision and still want to go ahead, here’s a step-by-step guide on how to stop life insurance policy.

Steps to Cancel Your ULIP Plan:

1. Gather Your Documents:
   

   
   
   • Policy document
   • Photo ID and address proof
   • Bank passbook or cancelled cheque
   • PAN card (for tax-related purposes)
   
   

2. Contact Your Insurer:
   

   
   
   • Visit the nearest branch.
   • Or go to the official website and log in to your account.
   
   

3. Submit the Surrender Form:
   

   
   
   • Request a surrender or termination form.
   • Fill it carefully. Mention the reason for cancellation.
   
   

4. Upload or Submit Documents:
   

   
   
   • Attach KYC papers, bank details, and policy form.
     
   
   

5. Verification Process:
   

   
   
   • The insurer checks all submitted documents.
     
   
   

6. Get Acknowledgement:
   

   
   
   • You will receive a reference number or acknowledgement slip.
     
   
   

7. Wait for Fund Transfer:
   

   
   
   • If cancelled after 5 years, the amount will be sent to your bank within a few working days.
   • If within 5 years, the money goes to a "Discontinued Fund" and stays there till the lock-in period ends.
   
   

What Happens in a Policy Cancellation Within the Lock-In Period?

If you are looking for how to terminate life insurance policy during the first 5 years, this section is crucial.

What You Should Know:

• Premiums Stop:
  • No further payments are required.
  
  
• Discontinuation Charges:
  • A fee is deducted as per your policy terms.
  • The amount depends on the premium and policy year.
  
  
• Money Moves to Discontinued Policy Fund (DPF):
  • Your remaining fund value is shifted to a safe fund.
  • This fund earns around 4% interest per year (as per IRDAI guidelines).¹
  
  
• Payout is Delayed:
  • You cannot withdraw this money right away.
  • It stays in the DPF until the 5-year period completes.
  
  
• Loss of Benefits:
  • No life cover during the discontinuation period.
  • You lose tax advantages under Sections 80C and 10(10D).
  
  

Hence, if you're wondering, can I cancel my ULIP plan early, know that it’s possible—but not ideal.

Conclusion

ULIP plans are useful when you want both life cover and market-linked returns in one product. But life is full of surprises, and sometimes we may have to rethink our financial plans. If you are asking how to stop a life insurance policy or how to terminate a life insurance policy, it’s important to understand how ULIP cancellations work, especially if you’re still within the lock-in period. While the process is simple, it can come with delays and charges. You may also lose your life cover and tax savings. Always review your options and speak to your insurer if unsure. Planning ahead can help you make smarter, more secure financial decisions.

FAQs

What are the charges for ULIP cancellation?

When you cancel a ULIP plan, the company may take some money as a charge. This is called a surrender or discontinuation fee. The amount depends on how many years you have paid and how much premium you pay. If you cancel before 5 years, a fee is cut, and your money is kept in a special fund. After 5 years if the policyholder chooses to cancel the policy, the company will return their fund value after deducting applicable charges as per policy terms and conditions.

How do I exit from the ULIP plan?

To exit your ULIP plan, visit the branch office or go to the insurance company’s website. Ask for the surrender form, fill it out, and attach your KYC documents, policy paper, and bank details. Once you submit everything, the company will check the documents. If everything is correct, they will stop your policy and send the money to your bank account, depending on when you are exiting—before or after the 5-year lock-in period.

What happens if I discontinue ULIP?

If you stop your ULIP plan before 5 years, the insurance company takes your money out of the market and puts it into a safe fund called the discontinued policy fund. This money earns a small fixed interest. You also lose your life cover. You will not get this money back until the 5-year period is over. If you stop after 5 years, the company closes the policy and sends you the final money after cutting any charges.

How do I get my ULIP money back?

To get your ULIP money back, you need to officially cancel your policy by filling a form and giving documents like your ID, address proof, bank details, and the policy documents. The company will check everything. If you cancel after 5 years, your money is sent to your bank quickly. But if you cancel before 5 years, your money is kept safely in a fund and given to you only after the lock-in period is over.