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Why Surrender Your ULIP Plan When You Can Gain Long Term?

Sep 19, 2019 | 8 months ago | Read Time: 3 minutes | By iKnowledge Team

A ULIP plan is a life insurance product that offers insurance and opportunity of investment in markets. Investors prefer to invest their funds in ULIP as they provide flexibility and facilitate creation of goal-based savings.  Additionally, a ULIP plan is said to provide greater transparency and offer tax benefits too. Does it make sense to surrender your ULIP Plan before the lock-in period?

Let us first understand how ULIPs are beneficial and the concept of a lock in period of a ULIP.

1. Dual Role of the Premium Paid
The premium paid on a ULIP investment is divided into two parts to serve a dual purpose. First part of the premium is channelized for covering the life risk and the other part to invest in debt and equity funds.

2. Decent Returns on Investment
ULIPs ensure good returns on an insurance product due to its equity advantage. ULIPs train you to follow investment discipline. A ULIP plan provides you with an insurance and an investment product as a single package. These investment package consist of stocks and bond options that give you market-linked returns.

3. Higher Degree of Security
To avoid a financial risk is a natural tendency of a normal investor. Therefore, mutual funds are a lot riskier as compared to insurance products. Hence a ULIP being primarily an insurance product prevents the negative impact that equity may have on you as an investor. 

4. Greater Transparency in Transaction
A key feature document summarizes the benefits and the features explaining the ULIP investment. This document is given to you after you have applied for the policy. This and the product brochure help you get complete clarity of the ULIPplan that you have applied for.

4. 15-Day Period of Return
Post applying for a ULIP plan, you have a 15-day window to return the policy if you are not convinced with the benefits and features it involves.

5. Beneficial from the Tax Perspective
Investors can avail tax benefits of up to INR 1.5 lakh per year on all premiums paid towards life insurance. At the same time all pay-outs received are exempt from tax under Section 10D of the IT Act.  

Reasons to Consider Before You Surrender Your ULIP                   
Has the thought of surrendering your ULIP ever crossed your mind? Think twice before taking that big leap. Why? Do go through the below reasons to know the answers:

(i) Low Premium Allocation Charges
As mentioned earlier, every time an investor pays premium, a part of it is invested in other investment products such as debt and equity funds. But before investing, a portion of the premium is deducted as premium allocation charge. This type of deduction is followed by various other charges such as fund management fee, policy administration fee, and funds allocation charges. These charges are on a higher side in the first year and in the subsequent years reduce to a level where they do not impact the funds. Which means if an amount worth INR 100 is invested in ULIP, INR 50 is deducted in the first year as premium allocation charge. The balance amount is invested in debt and equity funds. If the ULIP is for a period of ten years then in the tenth year, the entire amount of INR 100 is invested in debt and equity funds.

(ii) Continue Reaping Benefits
It is wise to stay put with your ULIP investment. You have the option to switch or change the investment pattern from debt to equity and vice versa. Remember that the performance of ULIP plan is subject to market fluctuations.If at one time the returns are less due to bad market conditions. This does not mean that the fund won’t perform well the next time. Avoid concluding basis a bad outcome in a short period. Instead think long term and observe how the ULIP plan works for the period of 15 years. Even if the lock-in period of 5 years comes to an end.

If you are considering investing in ULIPs, Aegon Life has a good investment plan. To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


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