Partial Withdrawal in ULIPs – What you need to know

With an ULIP, you can access your funds when in need. This can be done by way of a partial withdrawal without surrendering your policy. Also, as in a traditional money back plan you don’t have to wait for the pre-defined dates to make the withdrawal. Sounds simple and flexible, doesn’t it? Now let’s have a look at how to make a partial withdrawal and the guidelines which govern these withdrawals:

How to make a partial withdrawal?

     1)      Partial withdrawal form in prescribed format signed by the policyholder (no letter, email requests are entertained by most insurance companies). The form is available on the insurer’s website.

2)      NEFT details for direct transfer of funds (original cancelled cheque/passbook page showing required details)

3)      Self-attested identity/address copies

Most companies insist that the policyholder visit the nearest branch office with the original policy documents and original identity/address proofs and only after thorough and satisfactory verification by the branch personnel is the request accepted. Though this may seem cumbersome, such processes are actually in the interest of the policyholder as it helps keep fraudulent transactions at bay.

NAV applicability:

If the form and required documents have been received by the insurer’s office before 3 pm, the closing NAV of the same day is applicable. For requests received after 3 pm the closing NAV of the next business day is applicable.

Guidelines governing partial withdrawals:

1)    The partial withdrawal is made by way of cancellation of units at the applicable NAV (as explained   above) from the policy fund.

2)      Partial withdrawals are not permitted in unit-linked pension plans.

3)      Partial withdrawals are not permitted during the minority of the life insured.

4)      It is permitted only after the lock-in period of 5 years applicable for ULIPs is completed.

5)     It is permitted only if the policy is in force or in active status. Lapsed policies cannot avail this facility.

6)   In case any top-ups are made, then the partial withdrawal will first be adjusted from the top-up fund value (subsequently from the basic fund value). Only those top-ups will be considered which have been made at least 5 years prior to the partial withdrawal request (basically top-ups also have a lock-in period of 5 years).

7)     There are minimum and maximum partial withdrawal limits, these vary across insurers and even within products from the same insurer. For eg: Some insurers insist that an amount equal to three annual premiums remain in the policy fund after withdrawal whereas some insist that the amount of withdrawal should not exceed 50% of the total premiums paid.

8)   Withdrawal charges may be levied. There may be limits on no. of withdrawals permitted in a policy year. These rules vary from company to company.

9)   A partial withdrawal also impacts the sum assured of the policy. Yes, you read right. Do read the next two lines carefully.

·      If the life insured dies before attaining the age of 60, then all partial withdrawals made in the preceding two years is deducted from the sum assured payable on death.

·     If the life insured dies after attaining the age of 60, then all partial withdrawals made from age 58 onwards is deducted from the sum assured payable on death.

Hope the article is useful and informative. Though partial withdrawals can be made to meet exigencies, they should be used very cautiously as a partial withdrawal reduces the maturity corpus that one can accumulate.