A unit linked insurance plan is an insurance instrument that allows you to enjoy the benefits of life insurance cover and wealth creation. Hence, ULIP is known in the market for its dual benefits and has become an increasingly popular investment option as well.
Ideally, ULIPs come with a five-year lock-in period. You have to continue investing in the policy dedicatedly for these five years without making any withdrawals. But what happens if you are unable to pay the ULIP premiums? We are here to tell you just that.
Let us assume that you are unable to pay the ULIP premiums due to some financial crisis or you realise that the policy serves no purpose in achieving your financial goals. Hence, you decide to stop paying the premiums for the ULIP investment. If the ULIP has not completed the five-year lock-in period, you have two options:
- You can either revive the policy or
- You can withdraw from the plan without life insurance cover
Choosing either of the options will have the following consequences –
- No penalties for not paying ULIP premiums – Know that your insurer will not charge any penalties if you are unable to pay the ULIP premiums. However, you cannot withdraw the money from the plan until the three-year lock-in period is over.
- Endure a financial loss – In case you do not pay the ULIP premiums after the policy completes a year, you will lose the entire capital amount that you have invested in the plan so far.
- You will receive a notice from your insurer – In case you no longer pay the ULIP premiums, you will receive a notice within 15 days of completing the grace period. This notice serves as an option whether you want to revive the ULIP investment or not. You have to convey your policy revival decision to the insurer within 30 days of this notice.
- Final policy payout – By this time, you have decided to discontinue the ULIP investment even after receiving the notice for revival from the insurer. Know that you will not receive the policy payout unless the lock-in period is over. Also, before you receive the payout, charges such as fund management charges, annual charges, and surrender charges are deducted from it. So, the amount you receive as a final payout is insufficient.
During the ULIP lock-in period, you cannot make changes or withdraw money from the policy. However, if you surrender the plan, you will have to pay the surrender charges along with other fees. The final policy payout shall be received only after the completion of the lock-in period.
As mentioned earlier, the lock-in period is for five years in India. But it is highly advisable to continue investing in the policy for at least five years for better returns. A long-term ULIP investment performs the best. Hence, existing from a ULIP investment immediately after buying it is not a sound financial decision.
You can also research ELSS mutual funds and compare ULIP vs ELSS to understand the difference between the two. Other investment instruments to look for are mutual funds, SIPs, fixed deposits, etc. Note that you should evaluate all the options before investing in them for your financial security.