The conditions that control partial withdrawal from Ulips
linked insurance policies (Ulips) come with a 5-year lock-in, after which you can surrender your policy and make full withdrawal without any exit load or surrender charges. But what happens if you don’t want to close your policy, but need to withdraw some amount?
Limits on withdrawal
Ulips comes with a 5-year lock-in. Partial withdrawals can only be made after 5 years. Also, in case a minor’s life is insured, partial withdrawals can be made only when the life insured is 18 years old.
If you have made top-ups payments, then the partial withdrawal request will first have to be met from the eligible top-up funds. Subsequently you can make partial withdrawals from the base policy. Also, keep in mind that even top-up premiums come with a lock-in of 5 years. So in case the top-up is still under the lock-in, then the partial withdrawal will happen from the base fund value.
There are no rules around how much a policyholder can withdraw. The idea laid down by the regulations is that the policyholder shouldn’t withdraw so much that it might lead to termination of the policy con- tract.
However, policies will have specified their own limits. For instance, a regular premium Ulip that we looked at specified that the fund value should not fall below three times the annual premium after a partial withdrawal and that a single partial withdrawal request only allows you to withdraw up to 10% of the total premiums paid.
Another policy allows unlimited partial withdrawals, with the minimum partial withdrawal at Rs500 and a maximum to an extent such that the remaining fund value is at least 105% of total premiums. Partial withdrawals are paid by cancelling the units on the day the insurer receives the withdrawal request.
But if the request comes after 3pm, then the net asset value (NAV) of the next working day is taken while cancelling the units.
Partial withdrawals have a bearing on the insurance cover in the base policy as well. So, the sum assured payable on death stands reduced to the extent of the partial withdrawals made, during the 2-year period immediately preceding the death of the life assured. If a partial withdrawal was made before that, then it has no bearing. But if death occurs after 60, then all the partial withdrawals made within 2 years before attaining age 60 and all the partial withdrawals made after can be used to adjust from the sum assured.