What happens if payment of premiums is discontinued in ULIPs?

Mar 19, 2018 | 1 year ago | Read Time: 2 minutes | By iKnowledge Team

The consequences of suspending payment on ULIP premiums can vary depending on the year you discontinue the ULIP.

If you plan to discontinue your premium payments for ULIPs, here are the three things you need to know:                    

Scenario 1: Discontinuation before 3 years

  • A ULIP plan comes with an insurance cover. If you discontinue the policy within three years of commencement, you stand to lose insurance benefits. Let’s say you change your mind, and opt to revive the policy. Some insurers may allow revival within a pre-defined time post-discontinuation.
  • If you insist on discontinuing for good, the insurer pays you the predefined surrender value of the ULIP. The amount will be paid to you towards the end of the revival period or the end of the third year of policy commencement, whichever is later.

Scenario 2: Discontinuation after 3 years

  • The policy gets terminated, and you receive the surrender value provided you do not revive the policy during the revival period.
  • The insurer can offer the insurance cover, provided you had opted for it. The cover comes with an additional fee. You need to find out the fund value for your ULIP. The insurance cover can be availed until the fund value is lower than the annual premium. When the fund value exceeds the annual premium, the insurer terminates the ULIP contract and pays you the fund value.

Scenario 3: Policy with a lock-in period

A ULIP purchased on or after September 1, 2010, comes with a 5-year lock-in period. You can revive the discontinued policy or opt for withdrawal without any insurance cover. The insurer allows you to choose an option between the two. First, the insurer sends you a notice within 15 days post the expiry of the policy grace period.

  • If you opt for complete withdrawal within 30 days of the notice, the insurer will reimburse the proceeds of the discontinued policy once its lock-in period ends. You also lose the insurance cover under this option. Remember, this is the default option if you do not choose any option or don’t reply to the notice.
  • Under the second option, you can choose to revive the policy within 2 years of its discontinuance. However, the revival should be done before the lock-in period ends.

To sum it up

ULIP is an excellent investment that offers an insurance cover. It’s wise to stay invested in it till the policy matures. However, if you are compelled to discontinue due to any financial reason, you can do so, however at a cost. Once the situation improves, look at reviving the policy before the stipulated deadline to get back on track.

If you are worried about the well-being of your loved ones, a health insurance plan and a life insurance policy such as Aegon Life iTerm or iMax plan will provide you with the much needed peace of mind.

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