September 02, 2017
ULIPs are financial instruments that provide policyholders dual benefits of life insurance and investment in one plan. Over the last few years, ULIP insurance plans have shot to popularity. This is due to the great investment, flexibility and tax benefits these plans offer.
ULIP plans have a lock-in period of 5 years. No liquidity is allowed until the completion of this lock-in period. Also, it is during this period that the total charges of your ULIP are levied. Meaning that, even though a ULIP plan may provide a 9 % yearly return within the first five years, these charges cut into the earnings of the fund. This results in many policyholders exiting the plan post the lock-in period, under the impression that their fund isn’t performing well.
But exiting your ULIP insurance plan just after you’ve finished the lock-in period is a serious loss and you should definitely decide against such a move. This article will discuss some of the major reasons why you shouldn’t give up on your plan post the lock-in period.
You’ve paid all the charges but not reaped the benefits:
As mentioned earlier, your fund incurs a number of charges and fees within the lock-in period. These charges diminish along the tenure of the plan. Meaning that if you stay invested, not only will you recover these charges but also you allow time for your funds to really grow.
You’ll miss out on loyalty benefits:
One added feature of the ULIP Insurance Plan is that the insurance company declares loyalty bonuses every year. These bonuses are over and above the returns your funds earn you, leaving your plan just after the lock-in period means you’ll miss out on these loyalty additions.
You’ll have to pay surrender charges:
Some ULIP insurance plans also levy hefty surrender charges on the premature closure of the plan. Thus closing the plan just after the lock-in period means you’ve already paid a considerable amount of fee and when you decide to leave the plan, you’re again required to pay a surrender charge. If you still want to leave your plan, it’s advisable to stay invested a little longer, or at least till the surrender charges reduce or become nil.
Lastly, you’ll jeopardize your financial planning:
It’s obvious that when you went in for a ULIP, you were clearly looking for a moderate to long term investment, because that’s what ULIPs are. You would have also planned your financial goals and objectives accordingly. Leaving the plan just five years into it, means you have put a serious road-bump to your financial plans. Rather, it’s wiser to stay invested for a few more years, let a couple of market cycles pass and give your money time to grow.
Along with the above points, you’ll also miss out on the life cover and the tax saving benefits you are entitled to with a ULIP Insurance Plan. Thus, it’s always good to have a little patience, stay invested, give your money time to grow and reap the rewards when the time is right.
Stories by Nirav Patekar