A ULIP (Unit Linked Insurance Plan) offers the dual benefit of investment and insurance, making it a popular financial tool for long-term wealth creation. One of its key features is partial withdrawal, which allows policyholders to access a portion of their invested funds after a specified lock-in period. This flexibility helps investors meet urgent financial needs without surrendering the entire policy. However, partial withdrawals are subject to specific terms and conditions set by insurers. Understanding how they work, their impact on policy value, and the ideal time to withdraw can help investors make informed financial decisions.
What is Partial Withdrawal in ULIPs?
A ULIP is a dual-benefit financial product that provides life insurance coverage and investment opportunities in market-linked funds. A portion of the premium is allocated to insurance coverage, while the remaining amount is invested in equity, debt, or balanced funds based on the investor’s preference.
The partial withdrawal feature allows policyholders to withdraw a portion of their accumulated fund value after the mandatory five-year lock-in period without surrendering the policy.
Key Conditions for Partial Withdrawals in ULIPs:
- Lock-in Period: Withdrawals are only permitted five years after the policy purchase date.
- Withdrawal Limits: Typically, you can withdraw up to 25% of your fund value.
- Impact on Sum Assured: The withdrawn amount temporarily reduces the sum assured for two years.
- NAV-Based Processing: The withdrawal amount is determined based on the Net Asset Value (NAV) on the processing date.
Step-by-Step Process for Partial Withdrawal in ULIPs
If you need to make a partial withdrawal from your ULIP, follow these simple steps:
1. Verify Your Lock-In Period
Ensure that at least five years have passed since the policy purchase date.
2. Check Your Fund Value
Determine how much you can withdraw—usually up to 25% of your fund value.
3. Submit the Required Documents
To process your withdrawal, you need to provide the following:
- Original policy document
- Self-attested photo ID proof
- Cancelled cheque of your bank account
- Latest six-month bank statement
4. Submit Your Request
According to the Insurance Regulatory and Development Authority of India (IRDAI) guidelines, the applicable NAV is determined by the time the request is received:
- Requests received up to 4:15 p.m.: The same day’s closing NAV is applied.
- Requests received after 4:15 p.m.: The next business day’s closing NAV is applied.
Therefore, to ensure your partial withdrawal is processed at the same day’s NAV, submit your request before 4:15 p.m.
5. Receive the Withdrawal Amount
Once approved, the withdrawal amount will be credited directly to your bank account via NEFT.
How Partial Withdrawal Affects Your ULIP Policy?
1. Reduction in Fund Value
The amount you withdraw is deducted from your fund value, impacting the overall investment returns.
2. Temporary Reduction in Life Cover
The withdrawn amount will reduce your sum assured for two years. After this period, it will be automatically restored.
3. Impact on Tax Benefits
- After five years, withdrawal is tax-free under Section 10(10D), provided the annual premium is below ₹2.5 Lakh.
- However, if the withdrawal is made within the lock-in period, it will be subject to tax deductions and penalties.
For an individual earning ₹15 Lakh per annum, the tax liability is approximately ₹1.71 Lakh. Investing ₹2.5 Lakh in a market-linked ULIP plan reduces taxable income, lowering the tax liability to about ₹1.20 Lakh.
Over time, tax-free returns on the maturity of the plan enhance financial efficiency while ensuring protection for the investor’s family. By making ULIP a core part of tax planning, individuals can maximise post-tax income while building a long-term investment corpus.
Advantages of ULIP Partial Withdrawals
When used wisely, partial withdrawals from a ULIP can be a strategic financial tool. Here’s why they are beneficial:
- No Need to Surrender the Policy: You don’t have to liquidate your ULIP benefits to access funds.
- Avoids Costly Loans: Using partial withdrawals instead of taking a loan can save thousands in interest payments.
- Market-Linked Growth Continues: Based on market performance, your remaining ULIP investment grows after withdrawal.
- Sum Assured is Restored: After two years, your life cover is automatically restored to the original sum assured.
Final Thoughts: Make the Most of Your ULIP Benefits
A ULIP is not just an investment—it’s a financial assurance that provides the perfect blend of wealth creation and insurance protection. While the goal is to stay invested for long-term gains, partial withdrawals can serve as a critical financial buffer during unexpected emergencies.
If you’re looking for a ULIP that offers flexibility, market-linked growth, and insurance coverage, explore plans like Aviva India’s ULIP plans, which include all ULIP benefits. A well-chosen ULIP ensures that your financial future remains secure while giving you access to funds when you need them the most.
Instead of liquidating assets or taking high-interest loans, a ULIP partial withdrawal might be the smarter way to manage financial emergencies without disrupting long-term wealth creation.
