Step-by-Step Guide to Withdrawing ULIP Policy in India 2025

Unit Linked Insurance Plans (ULIPs) are investment-cum-insurance plans that provide you with both life insurance coverage and market-linked returns on your assets, a policy that is very profitable for any customer. Under ULIP Plans, you may choose from a range of funds and have the freedom to manage and fluctuate between them to meet your financial needs! ULIP policy comes in many types, and all with different perks, so knowing the details will help you find the best policy.

When policyholders decide to keep the investment for the whole duration of the term, a Unit Linked Insurance Plan is then used to its fullest potential. And that is exactly why if you are thinking about making a withdrawal, you must ask yourself whether the withdrawal is indeed absolutely required! There are also some rules and regulations that apply to every ULIP withdrawal, so let’s take a look at the fine print.

What is a Unit Linked Insurance Plan?

The ULIP financial plan combines the advantages of having an insurance with the returns from a market investment! In addition to providing life insurance protection for you and your loved ones, a ULIP plan such as the Mera Wealth Plan invests your money in a variety of market-linked funds, and these professionally managed market-linked funds then invest in a variety of asset types (debt, equity or both).

The performance of these funds determines how much your money will increase over the next few years! With the flexibility that ULIP plans provide in terms of premium payments and fund allocation, you may tailor your plan to your risk tolerance and financial objectives, however, since there are two components in a ULIP, they work in different ways.

• The life insurance part

  A portion of the ULIP payment is used to offer life insurance, which enables you and your family members to receive all life insurance benefits in case you pass away unexpectedly.

• The investment part

  The remaining portion of the premium is then used to make investments in the market for financial assets, additionally, depending on your demands, you have the option to invest in debt, equity, or hybrid funds. The ability to choose between fund alternatives is another feature that ULIP insurance provides to help you adjust and develop your personal policy in response to changing market circumstances, which can happen quite often.

Is there a Partial Withdrawal Option in ULIP?

Yes, partial withdrawal is allowed in certain circumstances, and to understand that, you have to know about the ULIP lockin period. Your ULIP insurance may have a twenty-year or higher maturity period, and only when your policy's lock-in period has ended may you make partial withdrawals from your ULIP! However, all ULIP plans include a five-year lock-in term, and the purpose of the lock-in period is to increase the value of your fund. Your fund value usually doesn't start to increase until you've paid the first several premiums on your ULIP insurance, so the longer your investing time, the higher your returns are! IRDAI, which oversees ULIPs, released a series of new rules for life insurance providers in 2020, prior to these new rules, different insurers had different partial withdrawal in ULIP limits, but now it is standardized.

What are the Available Types of ULIP Withdrawals?

If you are asking yourself ‘what is a policy withdrawal’ let us give a short explanation. Policy withdrawal means you are taking out some amount of money from your fund, it doesn't mean that you are canceling the entire policy! This is a flexibility offered by ULIPs to the investors that can be very handy because, in urgent or difficult times, the customer can withdraw lump sums from their plans. Nevertheless, there are restrictions based on when you want to make the withdrawal.

• Withdrawal before the 5-Year Lock-in Period

  The purpose of ULIPs is to function as long-term investments, and investors may only fully profit from ULIPs when they retain the policy for the whole term! For this reason, the Insurance Regulatory and Development Authority of India extended the ULIP lock-in duration from three to five years, and no liquidity is allowed during this lock-in period. This means investors are unable to take partial withdrawals from their ULIP as no liquidity is accessible until the 5-year lock-in period is over. Your coverage will expire if you surrender your ULIP plan, but you will still need to wait for your money until the five-year lock-in term is over. It is also crucial to remember that the ULIP policy is still in effect and that only those who have paid all of their premiums are eligible for the withdrawal provision.

• Withdrawal after the 5-Year Lock-in Period

  ULIP withdrawal after 5 years is allowed under the IRDAI policy, and in the event that you indeed request a withdrawal, your ULIP top-ups that have already reached the end of the five-year lock-in term will be withdrawn first. The basic fund value will only be used if the Top-up value has been used up or if there are no further Top-up payments, however, it is crucial to remember that early withdrawals may have an impact on your anticipated ULIP returns.

How Much Money Can Be Withdrawn in Partial Withdrawals?

How much amount you can remove from your fund during a partial withdrawal depends on your policy. You may easily take a small amount like ₹ 2,000 while making a partial withdrawal from your ULIP plan, however, the maximum limit is 25% of the fund value at the time of withdrawal! Also, the requirement is that at least a year's worth of premiums stay in the fund after the withdrawal. For example, let's imagine a policyholder purchased a ULIP policy that has a fund value of ₹4 Lakh, so in this instance, 25% of the fund value is equal to ₹100,000. After the five-year lock-in term, the policyholder is allowed to make a partial withdrawal of ₹100,000 because the sum equivalent to a year's premium is still in the fund.

Final Remarks

ULIP combines the advantages of investments and insurance, and with a single premium, you may access both life insurance coverage and investment opportunities! People choose this policy not only because ULIP average return is quite high, but the financial planning also becomes easy when you are no longer responsible for managing several insurance and investment products at the same time.

ULIPs are made to help you reach all your primary goals - increasing your wealth, saving for retirement, and making a life insurance policy to keep the future of your children secure. The best thing is, ULIPs provide a variety of premium payment options, and depending on your financial situation, you can select a monthly, quarterly, semi-annual, or annual payment schedule that will help you manage your finances optimally.

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