Is it a good idea to partially withdraw from a ULIP?

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Is it a good idea to partially withdraw from a ULIP?
Unit Linked Insurance Plans or ULIPs are considered to be one of the most effective insurance tools available to us today. They are popular mainly because they combine the elements of insurance and investment in a single product. When you buy a ULIP, a part of your money is put away in an insurance fund and the remaining money is invested in the financial markets. As a result, you stay covered and earn according to the functioning of the markets as well.

ULIPs are considered to be flexible because you can choose a type of fund that you like and also make switches at regular intervals. Additionally, you can also withdraw some money from your ULIP if you need it. Partial withdrawals are permissible in a ULIP but there are some terms and conditions associated with it.

Let's take a look.

Minimum duration - You can only withdraw from a ULIP only after the policy has been active for a minimum of 5 years. You cannot withdraw any money unless the minimum period is reached. 5 years is the standard time-period, but some policies allow you to withdraw after 3 years as well. Read the documents carefully to be clear about the minimum duration clause.

Cap on withdrawal - You can only withdraw a percentage of the total money you have in your ULIP. At no time within the duration of your policy can you withdraw the entire sum. If you do this, you will have to surrender your policy prematurely. Generally, an amount equivalent to a year's premium has to be present in the ULIP at all times. For example, if you have a total of Rs.1Lac in your account, and your annual premium is Rs.25,000, you can withdraw a maximum of Rs.75,000.

Minimum withdrawal - Like the maximum withdrawal limit, there is a minimum withdrawal limit as well. Usually, you can borrow a minimum amount of Rs.1000 from your ULIP fund, but this differs from policy to policy.

Decrease in sum assured - It is important to note that with every partial withdrawal, the sum assured decreases. Also, a fixed number of withdrawals are free, post which you will have to pay a fee every time you partially withdraw from the ULIP.

Withdrawal possible with premium payment - You can only withdraw from a ULIP if you have religiously paid the premiums on time, without fail. If there is any discrepancy or suspension in premium payment, you cannot withdraw from your ULIP.

The partial withdrawal option in a ULIP is a useful tool but you need to be sure as to how it works. Experts always advise against withdrawing from a ULIP as it reduces the sum assured. So, try to avoid this practice unless you are in desperate need of funds. Also, it makes sense to partially withdraw from a ULIP only if the policy is for a long duration like 20 or 30 years, since in such long policies, the funds are substantial and partial withdrawals don't drastically impact the sum assured. So evaluate your policy, your needs and weigh them against the clauses of the policy. Opt for the partial withdrawal option only if you find a favorable equation.

Written By: Deepak Yohannan
The author is the CEO of MyInsuranceClub.com, an online insurance price & features comparison portal

For more articles by Deepak Yohannan, please visit MyInsuranceClub.com
You may write to the author at Deepak@myinsuranceclub.com

Read more about: ulip, insurance
Story first published: Monday, August 5, 2013, 10:34 [IST]
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