What Is The Minimum Lock-in Period For ULIP?

A Unit Linked Insurance Plan (ULIP) combines insurance and investment into one package. The purpose of a ULIP is to provide wealth development as well as life insurance, with the insurance company investing a portion of your money in life insurance and the balance in a fund that is based on equity, debt, or both and meets your long-term goals.

When you invest in a ULIP plans, the insurance company invests a portion of the premium in stocks, bonds, and other investments, while the remainder is used to provide insurance coverage. The investments are managed by fund managers in insurance firms, so the investor is relieved of the burden of keeping track of his or her money.

Must Read: Which Is Better ULIP Or Term Insurance?

Lock-In-Period Of ULIP

The Insurance Regulatory and Development Authority of India (IRDAI) expanded the three-year lock-in period for ULIPs to five years in 2010. However, because insurance is a long-term investment, you may not reap the full benefits of the policy unless you hold it for the whole term, which can vary from 10 to 15 years.

The fund value is transferred to a fund intended for discontinued policies, often known as the DP fund if the policy is terminated or surrendered before the conclusion of the five-year period. Surrender or discontinuance fees may also be deducted, depending on the terms and conditions of the various ULIPs.

Should I Exit From My ULIP After The End of the Lock-in Period?

Here are a few reasons why you should not exit your ULIP as soon as the lock-in period ends.

1. ULIP Premiums Are Expensive In The First Few Years

Before the premiums are invested, the premium allocation expenses are subtracted. Charges such as fund allocation fees, fund management fees, and policy administration fees are also subtracted, either by canceling units or modifying the NAV. These deductions are typically made in large amounts during the first years of unit-linked insurance plans and gradually decrease over time.
When the lock-in period expires, these deductions are reduced to the point where they have no effect on the fund's value. In other words, the amount of money invested during the lock-in period is lower than during the policy's later years. Similarly, canceling the plan before the lock-in time expires will result in low ULIP returns.

2. Investing In A Long-term ULIP Will Pay You In The Long Run

Unit-linked insurance plans, as previously said, are a long-term investment. Although you have the option to leave the plan after the five-year lock-in term, it is highly recommended that you do not. If you want to get the most out of your ULIP investment, stick with it for a long time (at least 15 to 20 years).
If your chosen funds are not doing well, you can make the necessary changes using a switch option, which is based on market movement. If you've invested in equity-oriented funds, you'll probably want to keep your money there for a long time. When equity funds invest over a longer length of time, they earn higher returns.

Conclusion

Smart investors who practice financial discipline understand that the ULIP lock-in period is a boon because it lets them expand their wealth significantly over time. Policyholders can keep control of the funds into which their premiums are invested for five years. For someone who buys and tracks investments online, transparency in the form of frequent information regarding investments in funds, the quantity of units, and their value is a godsend. ULIPs appeal to a hands-on investor since they let him or she choose between equities, debt, or hybrid funds based on his or her risk profile.

Also Read: What Are The Benefits Of ULIPs?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.