Why You Shouldn’t Exit Your ULIP?


It is common for you as investors to consider discontinuing your investments once you realise it doesn’t meet your financial goals. But this isn’t very easy, as you have invested your hard-earned money in such a financial tool. Similarly, for ULIP, exiting the plan mid-way or right after the lock-in period isn’t advised for policyholders. By doing this, you end up losing out on a good investment option that was meant for the long term. So, here are drawbacks of discontinuing your Unit-Linked Insurance Plan.

  • Benefits earned on ULIPs will be low

When you choose to invest in Unit-Linked Insurance Plan, you must pay several charges. Some of them are allocation charges, switching fees, fund management charges, policy administration expenses, etc. During the lock-in period, the impact of these charges is high, thus, reducing the premium amount invested in the fund. Therefore, you haven’t earned many benefits during the lock-in period to exit prematurely. 

But as the lock-in period gets over, the charges start lessening as the tenure of the plan increases. Hence, you can recover the expenses paid towards ULIP and start earning some good returns. However, discontinuing your ULIP policy right after the lock-in period gets over, isn’t advised either. Because, exiting the policy at this point would mean cutting short the growth of your ULIP plans returns when the charges are lower. You can estimate the returns you get on staying invested for the long term with the help of the ULIP return calculator.


  • You would lose out on the loyalty points

For retaining policyholders and keeping them invested in ULIP, insurance providers offer loyalty additions as a token. If you do not discontinue your insurance policy, the insurer shall provide extra allocation to your investment fund. The loyalty addition can be a major benefit to any policyholder as you are rewarded for carrying on with ULIP. However, if you were to exit the policy early, you would lose out on these perks. As some companies offer this benefit after the lock-in period is over and some from the beginning, you need to check the terms mentioned in the plan. So, you can avail such advantages on staying put with your investment.


  • Surrender charges shall be applicable

Though ULIPs have a lock-in period of five years, you can choose to surrender the policy mid-way. But while exiting the policy so early, you need to remember that the money will be paid only after five years. Also, on submitting the request for surrendering your ULIP, the insurance provider shall deduct some charges for discontinuing the plan. You would lose the risk cover and the funds will continue to earn interest that will be paid out to you later. But this isn’t the best of conditions, as you shall end up missing the ULIP plans returns.

  • You won’t get tax benefits & life cover

With ULIP, you can avail tax benefits on the premium paid as well as the maturity or death benefit. But if you exit the plan ahead of schedule, you won’t be able to claim this amount as a deduction. You shall also lose out on the life cover offered by ULIP, which financially safeguards your loved ones in your absence. Once you discontinue the policy, such a benefit is no more available as a backup in case of an unfortunate mishap.

Now that you know how exiting a ULIP policy can affect your investment, it is advised to plan accordingly. To understand the returns, you can earn from ULIP in the future, make use of the ULIP return calculator and double-check your decision of discontinuing the policy.