ULIPs (unit-linked insurance plans) are investment-cumulative insurance products that combine investment returns and life insurance coverage into a single plan. Because of their high return potential, flexibility, and tax benefits, ULIP plans are becoming increasingly popular in India.
Another great feature of ULIP is that it allows partial withdrawals. With this feature, redeeming some of the units of your ULIP fund to materialise profit becomes extremely easy.
In this blog, we will shed some more light on ULIP withdrawals, including what they are, how they work, and what you should know before making a ULIP withdrawal.
What Exactly is a ULIP Withdrawal?
A ULIP withdrawal is withdrawing a portion of your ULIP investment before the policy’s maturity date. ULIP insurance is intended to assist you in meeting your long-term financial objectives, and the withdrawal option is provided to assist you in meeting any unforeseen financial emergencies.
How Does the ULIP Withdrawal Process Work?
ULIPs allow for partial and full withdrawals. While full withdrawals are permitted once the policy matures, partial withdrawals in ULIP are permitted during the policy term. A partial withdrawal means you withdraw a portion of your invested amount from a ULIP policy while keeping the remainder of your investment intact.
Keep in mind that ULIP policies come with a minimum lock-in period of 5 years, and no partial withdrawal in ULIP is allowed before that time frame. In addition to that, ULIP plans often charge a withdrawal fee which varies from one insurer to another.
What are the Tax Implications or Tax on ULIP withdrawal?
Under certain conditions, ULIP withdrawals are taxed. If you withdraw the money after five years of investment, the money is tax-free. If you withdraw the money before five years, the money will be added to your income and taxed as per Section 10 (10D) of the I-T Act 1961.
Furthermore, if you make a partial withdrawal, the amount you withdraw is taxable only if the premium paid exceeds 10% of the sum assured. The amount withdrawn is tax-free if the premium paid is less than 10% of the sum assured.
What are the Advantages of Taking ULIP Withdrawals?
One of the most important advantages of ULIPs is that they provide liquidity through the partial withdrawal option. ULIPs allow you to withdraw a portion of your investment to cover any unexpected financial needs without jeopardising the remaining investment’s growth potential. Partial withdrawals can also assist you in meeting short-term financial objectives, such as paying for your child’s education or purchasing a home.
How Do I Withdraw From My ULIP Fund?
To withdraw from your ULIP Fund, you must submit a written request to your insurer. The insurer will process the request, and the withdrawal amount will be transferred to your registered bank account. The withdrawal amount is usually credited to your account within ten to fifteen working days.
But remember that ULIP withdrawals can have an impact on the policy’s performance and reduce the amount of the death benefit payable. The death benefit will be reduced by the amount of the partial withdrawal if you make one. Furthermore, the amount of a partial withdrawal may affect the fund’s value and the policy’s investment returns.
The partial withdrawal option in ULIP is an added bonus that provides liquidity throughout your investment journey and meets any short-term financial needs. It is important to note, however, that ULIP withdrawals are subject to certain conditions and charges that vary by insurer. And if you decide to choose a ULIP plan, go for a well-reputed one like the Tata AIA ULIP plan.
You can save money by selecting the right ULIP policy and understanding the terms and conditions. Make informed Decisions. Good Luck!