As inflation keeps increasing due to various factors, it has a direct impact on the cost of living for everyone. Increase in the price of essentials means more burden on your income. When you spend more, you might end up with a lesser amount that you can save for the future. However, instead of relying purely on savings, you can opt to invest instead.
When you invest in a ULIP plan, not only does it help in increasing your wealth over time, but it also helps you in accomplishing your life goals. If you have any major expense lined up, you can manage it with the help of a partial withdrawal from your ULIP. What is a partial withdrawal? Keep reading to know more about this feature.
What is ULIP?
A unit-linked insurance plan, or ULIP is a type of life insurance policy. In this plan, you get the dual benefits of investment and insurance under the same policy. The money for these components comes from the premium paid towards the plan. In the investment component, you get to invest in equity, debt, and balanced funds. Each fund has its risk factor and rate of return. The investment is done based on your requirement and your risk appetite.
In the insurance component, your family gets a life insurance cover. With the help of this cover, they are compensated with a death benefit in the event of your sudden demise during the plan’s term. They can use the money to manage daily expenses and cover the cost of emergencies.
Understanding partial withdrawal
For many people, there could be a sudden expense that they might need to take care of. Or, they might have an expense planned at a specific point. Either way, the requirement of funds arises to cover the said expense. You can do a partial withdrawal in ULIP to cover such expenses. Do keep in mind that new rules set by IRDAI specify you are allowed to make 3 partial withdrawals from your ULIP after the lock-in period ends, which is of 5 years.
Partial withdrawals are only allowed after the lock-n period ends. 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.
When should a partial withdrawal be done?
Usually, ULIP investors are advised not to do a partial withdrawal; however, certain situations arise where money is required. In such situations, partial withdrawal could help you in taking care of expenses incurred in those situations. Do keep in mind that the maximum amount that you can withdraw is 25% of the fund’s value.
When you do a partial withdrawal, it does have an impact on the value of your fund at the same time also impacting your sum assured. The amount you withdraw is taken from your fund; you might 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 done given that another withdrawal is not initiated during the 2-year period after 1st withdrawal. Premium needs to be paid for the restoration of sum assured to happen.
When can you do a partial withdrawal?
As mentioned earlier, partial withdrawal is allowed only after 5 years, policyholders who have paid all the premiums are eligible for partial withdrawals. You cannot initiate any partial withdrawal during the lock-in period. If you wish to surrender the plan, you are ineligible to do any partial withdrawal.
If you have in a ULIP and wish to do a partial withdrawal, this is all you need to keep in mind about it. If you are interested in investing in a ULIP, you can use the ULIP return calculator to see how much your returns would be based on your investment.