Can I Withdraw my Money before Maturity from a ULIP?

Written by : Knowledge Centre Team

2022-02-14

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You decide to make investments so that both you and your family’s future is secured and both can achieve your dreams as you move forward with life. Long-term investments offer many benefits a short-term investment cannot.

Also, to avoid regular withdrawals from your long-term investments you need to have a robust emergency fund and contingency plan in place. So, even if plans like ULIPs allow premature withdrawal you can avoid using the feature.

Why should you Use Long-term Investments?

Even though you need money almost every few years in life, long-term investments offer you benefits which are too important to ignore. Here are a few advantages that you can get from making a long-term investment

1. Get the Best of Compounding

One of the biggest advantages of making a long-term investment is that you can get the benefits of compounding. The longer you stay invested in a policy, the more compounding will work for you.

It is a process in which the profits you earn are reinvested. Thus, you gain interest in your initial investment as well as the interest you earned.

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2. Get Tax Benefits

You pay fewer taxes in a long-term investment than you would pay if you hold your investments only for a short period.

Yes, long-term investments are subject to tax deductions. You can avail deductions u/s 80C as well as 10(10)D if you stay invested in a long-term investment (more than 5 years).

3. Get Peace of Mind

When you invest in the long term, you do not need to worry much. You do not have to get much involved in these investments. Investing in the short-term on the other hand can give you reasons to worry every day. Also in short-term investments, you will need to find another investment every few years as the investment period ends.

How ULIPs can be Used a Long-Term Investment?

Unit linked insurance policies are types of life insurance policies that, apart from providing life over, also provide you with the opportunity to invest in the market.

ULIP is looked at as a long-term investment as it is purchased by those who have a goal with a long-term horizon. But ULIP plans are very flexible and this makes it possible to invest according to your tenure, be it long or short.

1. Partial Withdrawals

This is a feature that marks the flexibility of ULIPs. Unlike other long-term investments, ULIP allows you to partially withdraw your money. This facility allows you to withdraw from you’re the fund value you have created while staying invested.

Thus, Partial Withdrawals ensure that you do not have to take loans if you encounter an emergency or approach someone else, you can use your ULIP’s fund.

2. Lock-in Period

A lock-in period is a duration during which you cannot withdraw from your funds. ULIPs have a lock-in period of a minimum of 5 years. A lock-in period does not allow withdrawals; thus, your funds remain untouched and can grow well during this period.

3. Maximum Investment Tenure

ULIP provides you with flexibility in choosing a tenure for investment. You can choose your tenure as per the goal you want to achieve.

Policies like Canara HSBC Life Insurance’s ULIPs Invest 4G have a limited pay option in which you have to pay only for a limited time and enjoy the benefits of your policy till later.

4. Asset Classes

ULIPs also give you an option to choose from a number of asset classes, according to your goal and term.

If you want to stay invested for the long term, you can try riskier asset classes such as Equity or Balanced funds. However, if the long-term investment is not your thing, you can look at investing in Liquid funds as well.

5. Premature Withdrawals

You can partially withdraw your funds even before maturity in ULIP plans. But there are some terms and conditions present.

When are Premature Withdrawals Possible?

You are allowed to withdraw prematurely from your funds when the following three conditions are fulfilled.

a) You must have attained the age of 18

b) The lock-in period must be completed

c) You have paid all the premiums due

Withdrawal Limits

There are limits on premature withdrawal, that is, you cannot withdraw the whole of your fund in one go. The limits set vary across insurance providers.

Withdrawing Money before Maturity from Invest 4G

Invest 4G is an online ULIP plan from Canara HSBC Life Insurance. Here are the limits which are present in the Invest 4G.

a) Minimum Withdrawal

The minimum amount that you can withdraw from your fund is Rs 5000. Thus, you have to withdraw a sum more than or equal to Rs 5000, to take the benefit of withdrawal.

b) Maximum Withdrawal

The maximum amount you can withdraw is such that after withdrawing, your fund value should be the following.

In case of Regular Pay

- 120% of the premium you pay in a year

In the case of a single premium payment

- 25% of the premium paid

For Example:

- You have taken a ULIP policy of Rs 20 lakhs and you decide to pay your premiums regularly.

- Now you pay Rs 2 lakhs as a premium every year.

- After 5 years you want to withdraw your money, you can withdraw a maximum of Rs 2.4 lakhs (120% of Rs 2 lakhs)

How does Premature Withdrawal Affect Maturity Benefits in Invest 4G?

Yes, the maturity benefit is provided to you if you survive the term of the policy. In the case of ULIPs, the value of your fund at the time of maturity is given to you as a maturity benefit. Premature withdrawals reduce your fund value and thus can affect your maturity benefit.

How Does Premature Withdrawal Affect Death Benefits in Invest 4G?

Canara HSBC Life Insurance ULIP plan Invest 4G has 3 plans that you can choose from.

- Life Option

- Care Option

- Century Option

In Care Option, the partial withdrawals you made do not affect your sum assured. In the other 2 options, you get the sum assured after deducting recent withdrawals.

Be Careful With Premature Withdrawals

Here are the other useful Withdrawal Features of Invest 4G

Systematic Withdrawal

You can withdraw 1 – 12% of your FV from the plan, which is more than the adhoc withdrawal limit. Systematic withdrawal is available after the 10th policy year.
Milestone withdrawal

You can withdraw 20% of your fund value every five years starting from the 10th policy year.

Both the withdrawal options let you benefit from your accumulated funds in the ULIP plan, without affecting the growth of your savings.

Invest for Long-Term with Withdrawal Options

Long-term investments are important, but the liquidity option should also remain open for most of them. With good liquidity options after just a five year lock-in period, ULIP is a long-term investment plan with adequate liquidity. So, with ULIPs, including Invest 4G plan, you can enjoy long-term growth and relax that you can have your money when you need it.

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

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