3 Things to Know Before Discontinuing ULIP Policy

What is a lock-in period?

A lock-in period is the minimum time you must stay in the ULIP plan before you can withdraw or discontinue. For ULIP policies bought after September 1, 2010, this lock-in period is five years. During this time, you cannot withdraw the money or fully close the policy. If you stop paying premiums, the funds stay in a separate discontinued policy fund. You can access your money only after the lock-in ends. This rule is as per IRDAI guidelines. The lock-in helps keep the policy active long enough to get market-linked benefits.

3 Things to Know Before Discontinuing Your ULIP Policy

Stopping your ULIP plan is a big decision. Here are three simple but important things you should know before you proceed.

Your ULIP has a Lock-In Period

If you stop the policy before five years, you will not get your money immediately. The amount goes to a discontinued policy fund. You can only get it back after the lock-in period ends. During this time, a small interest may be added, and basic charges are deducted.

You Have the Option to Revive Your Policy

You can bring back your policy if you change your mind. Most insurers allow you to revive a ULIP within 2 to 3 years. You will need to pay the missed premiums and some charges. Once revived, your policy will continue as before, and any deducted discontinuation charges may also be added back.

You Can Also Choose to Discontinue the Policy

If you decide to stop fully, you can do so. After five years, you can withdraw your money. But if you stop before five years, your amount will be locked until the end of the lock-in period. The final payout will be after subtracting the applicable charges. This is called the ULIP surrender process.

What is the discontinued policy fund for ULIP?

When you stop a ULIP before the lock-in period ends, your money is moved to something called a discontinued policy (DP) fund. This fund is separate and earns a small interest. However, some basic charges like fund management fees are still deducted. The amount stays there until the lock-in period is over. After that, you can receive the remaining fund value. This helps protect your savings even if the policy is not active anymore.

Conclusion

Discontinuing your ULIP policy early is a significant step. This step can reduce the amount you receive and may come with deductions called ULIP charges on discontinuation. On above that, if you stop within the lock-in period, your money goes to a separate fund and is locked till five years of the plan are completed. But you also have the option to revive your policy and avoid this loss. ULIPs are meant for long-term savings and life cover. Always read the policy terms and consult your insurer before making a decision.

 

FAQs

How to discontinue ULIP?

To stop your ULIP policy, you need to inform your insurance company. This is done by filling out a form or sending a written request. If you stop it before the 5-year lock-in period ends, your money will not come to you immediately. It will go into a separate fund called the discontinued policy fund. You will get the money only after 5 years have been completed. If you stop the ULIP after 5 years, you can withdraw your money without waiting. Just remember, some charges may apply if you discontinue early.

What if I stop paying ULIP premium?

If you stop paying your ULIP premium before completing 5 years, your policy becomes inactive. Your money moves to a discontinued fund. You cannot take this money out until 5 years are over. The life cover also stops. After the lock-in period ends, you can get the amount left in your fund, but some charges might be deducted. If you stop paying after the 5 years, you may be allowed to keep your policy running in a paid-up mode or withdraw money, depending on your insurer's rules.

What are the discontinuance charges for ULIP?

Discontinuance charges are fees the insurer deducts if you stop your ULIP early. The charges are

How do I cancel my ULIP during the free look period?

You can cancel your ULIP policy during the free look period, which is usually 15 to 30 days after you get the policy documents. Just send a cancellation request in writing to your insurance provider. The insurer will return your premium after taking out some basic charges like stamp duty, medical check-up fees (if any), and service charges. This option is helpful if you feel the policy is not what you expected. Make sure to act within the free look period to avoid charges and keep your money safe.

What happens if I stop paying the premium after 2 years?

If you stop paying your ULIP premium after 2 years, your policy does not end right away. Instead, the insurer moves your money into a special account called the discontinued policy fund. You won’t lose your money, but you also can’t access it until the lock-in period ends. A small interest is added to your fund, and some charges may be deducted. After 5 years have passed, you can get back whatever is left in your fund.