Unit-Linked Insurance Policy or ULIP is a hybrid financial product that offers the dual benefit of insurance and investment under a single policy. Thus, ULIPs give you the assurance of financial protection to your family against future uncertainties and the opportunity to build wealth. 

Although ULIP is primarily a life insurance product, it allows you to invest in different money market instruments like bonds, stocks, and debt and equity funds. One of the critical things to know about ULIP is that it has a lock-in period of five years. 

If you are unsure what the lock-in period is and its implications on your investment in ULIP policy, read on to know more about it. 

What is the lock-in period?

The lock-in period in ULIP policy is when you cannot withdraw or liquidate funds from the accumulated fund value. ULIPs have a lock-in period of five years. This means you cannot withdraw funds for five years. This allows you to be financially disciplined and make regular investments in ULIP.

Many experts recommend that ULIP policyholders stay invested for a longer period and avoid withdrawing funds before the lock-in period even if the fund value increases. If you surrender the policy before the lock-in period, you will get the surrender value after five years. Also, you would be subject to pay various charges, which would be deducted from the fund value. 

Important things to know about the lock-in period

Withdrawals allowed

Generally, ULIPs allow you to partially withdraw funds from your account after the lock-in period is over. Some plans allow unlimited free partial withdrawals after five years. Other plans may have restrictions on the maximum amount you withdraw and the number of withdrawals you can make. Some plans may even allow you to partially withdraw the funds after three years of continuously paying the premium. 

Surrendering the policy before the lock-in period

If you want to discontinue or surrender the ULIP policy before five years, the insurance company will transfer the fund value to the Discontinuance Fund. Additionally, the insurer will deduct the discontinuity charges from the fund value as per the policy terms and conditions. 

You will receive the money after five years. The money in your discontinuance fund is subject to earn interest at 4% till the end of the lock-in period. In the event of your demise during the lock-in period, the insurer will pay the amount to the nominee. 

Suppose you surrender the policy after the lock-in period. In that case, the insurance company will pay the fund value at Net Asset Value (NAV) applicable on the date of surrendering the policy. In such cases, the insurance companies do not levy discontinuance charges. 

Final Word

The lock-in period in ULIP is a boon as it allows you to invest in the policy and build a decent corpus. To get higher returns and build a large corpus, it is better to stay invested in the policy for a more extended period of 10-15 years or more. 
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