Surrendering Your ULIP Insurance Before Time? – Here’s What You Must Know

A unit-linked insurance plan (ULIP) offers insurance as well as investment benefits. It can offer good returns if investors stay invested for the entire tenure. However, surrendering the policy before maturity can have an impact on the returns.

Read on to know how surrendering a ULIP before the end of tenure can impact your investment.

A ULIP is a product that offers the benefit of investment and insurance. A part of the premium goes for life insurance, and the other part is invested in different investment instruments. This policy can provide benefits if an investor plans to stay invested for the entire tenure.

Let’s take a look at some of the benefits offered by ULIPs-

  • Offers Life Cover

When a policyholder invests in a ULIP, he/she is also provided with life cover. The insurer can provide the sum assured to the policyholder’s family if he/she passes away untimely.

  • Offers Investment Benefits

While a ULIP insurance offers life cover, it also gives investment benefits. A part of the premium gets invested in investment instruments. Therefore, by purchasing a ULIP, a policyholder can secure his/her family and earn good returns.

  • Choose Fund Options

There are various fund options that ULIPs offer, such as equity, debt, etc. A policyholder can choose a fund option based on his/her investment goals.

While a ULIP offers various benefits, investors might want to surrender the policy based on their personal requirements.

What Happens If You Surrender Before the Lock-In Period?

There is a lock-in period of 5 years for ULIPs. However, policyholders can surrender the policy before the lock-in period.

In case a policyholder submits the request to surrender the policy, then the risk-cover will stop. But the money that is invested will be paid after the lock-in period.

The policyholder also needs to pay some charges. There will be some deductions made before the amount is paid to the policyholder. He/she will have to pay a few discontinuance charges.

After the discontinuance charges are levied, the remaining funds will be transferred to discontinued policy. The funds will be in discontinued policy until the end of the lock-in period. A fund management fee might be charged during this time. However, these funds will also earn interest while they are in the discontinued policy.

What Happens If You Surrender the Policy Before the Tenure?

In case a policyholder surrenders the ULIP after the lock-in period but before the end of the tenure, then he/she will lose the investment value of the policy. This is because during the lock-in period a policyholder must pay a higher amount in charges, such as fund management charge. The amount of charges goes down after the lock-in period. Therefore, by surrendering the policy before maturity can lead to loss of fund value.

Furthermore, the charges are met by a reduction in the market value or by unit cancellation. This can cause more loss.

It isn’t wise to surrender the policy because the funds aren’t giving good returns. Instead, the policyholders have the option to switch funds. They can switch them and choose funds that can provide them with profits.

How to Revive After Surrendering a ULIP?

If you have surrendered a ULIP before the lock-in period but want to change your decision, then you have the option to revive the policy. However, you need to revive the policy within a maximum of two years of surrender. Once you revive the policy, the surrender charges levied will be added to the discontinued policy fund. Unpaid premiums and other charges will also be deducted.

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