What Happens If You Discontinue Your ULIP’s Premium Payment?
One of the essential duties of an earning member of the family is to ensure that their loved ones will be safe in their absence. The most effective way to do that is to invest in a life insurance policy. However, if you want an option that offers additional benefits, consider purchasing a Unit-Linked Insurance Plan (ULIP).
A ULIP plan is a unique investment instrument that combines the dual benefits of life insurance and wealth generation. ULIP fund managers divide your premium into different funds, such as debt, equity, or a combination of both. If you keep the money in the ULIP fund for an extended period, you can benefit from high returns. However, if you cannot continue paying the premium for any reason, there will be some consequences.
If you want to know more, keep reading.
Important things to note
A ULIP policy is a long-term plan. If you want to enjoy its varied benefits, continue to pay the premiums on time. However, if you do not wish to stay invested or cannot do so due to any unavoidable condition, you will lose out on some or all of the benefits. This depends on when you are surrendering the ULIP.
Below are explanations of three scenarios that can occur when you stop paying the premium.
- When you discontinue before three years
A ULIP offers life insurance cover, which the insurer pays to your nominees if you cannot be there for them. However, if you decide to surrender the policy before the third year since its commencement, the life insurance benefits will not be available any longer. Some ULIP providers allow you to resume the ULIP within a specified period, which will enable you to receive the benefits.
However, if you choose not to go on with the policy, the insurance provider will pay you a surrender value. This amount is pre-determined at the time of policy initiation. The insurer pays this sum at the end of three years.
- When you discontinue after three years
When you terminate the ULIP insurance policy after three years, you will have the option to revive it within a fixed period. If you do not opt for that choice, the insurance company will pay the surrender value. If you still want the life insurance cover, the insurer will provide it for an extra charge.
To get the cover, you first have to find the ULIP fund value. If the amount is lower than the premium you pay in a year, the insurance company allows you to have the life insurance cover. In case the fund value becomes more than the yearly premium, the insurance provider will pay this amount to you and close the ULIP.
- ULIP with a lock-n period
If you brought the ULIP insurance after or on September 1, 2010, it includes a lock-in period of five years. During this time, you have the choice to continue with the surrendered policy. You can also discontinue permanently and withdraw the available fund. However, the life insurance policy will lapse in that case.
If you cannot pay the premium on time, the insurer will send you a notice within 15 days after the grace period is over. If you still want to surrender the ULIP and withdraw the fund, you can do that within 30 days of receiving the notice. In this case, you will lose out on the life insurance cover, and the insurer will pay you the proceeds of the discontinued ULIP after the lock-in duration ends. However, if you are not opting for withdrawal, the insurer will allow you to resume the policy within two years since you discontinued it. Here, you need to revive the ULIP before the end of the lock-in period.
A ULIP policy is an excellent option for growing your investment along with securing a life cover. Experts recommend that you remain invested until the ULIP matures to earn lucrative returns. In case you need to terminate the ULIP due to any monetary problems, consider the three scenarios mentioned above, and then make an informed decision.