Unit 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? Ulips give you the flexibility to make partial withdrawals. However, there are certain conditions around this.
Limits on withdrawal
Ulips comes with a lock-in period of 5 years. This means, you can't make any withdrawals at this time. In fact even if you choose to surrender or discontinue your policy, the money is made available to you only after the 5-year lock-in period.
Partial withdrawals can only be made after 5 years; however, keep in mind that you can't make a partial withdrawal from a unit linked pension plan. Also, in case a minor's life is insured in the policy, partial withdrawals can be made only when the life insured attains 18 years of age.
If you have made top-ups payments to your policy, then as per the rule, the partial withdrawal request will first have to be met from the eligible top-up funds. A top-up premium is the amount paid at irregular intervals over and above the basic premium that is specified in the insurance contract. 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.
Withdrawal limit
There are no rules around how much a policyholder can withdraw. The big picture idea laid down by the regulations is that the policyholder shouldn't withdraw so much that it might lead to termination of the policy contract: a situation when there aren't enough funds to pay for the costs in the policy.
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. Also, a policyholder can make partial withdrawals only in the gap of 3 months and overall (that is, over the course of the policy) the withdrawals can't exceed 50% of the total premiums paid, including any top-up premiums paid.
Another policy allows unlimited number of 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 (including top-up premiums) paid. Partial withdrawals are paid by cancelling the units on the day the insurer receives the withdrawal request.
However, if the request is received after 3pm, then the net asset value (NAV) of the next working day is taken while cancelling the units.
Insurance cover
Remember that 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 on the sum assured. But if death occurs after 60 years of age, 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.
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