Should You Hold Your ULIP After The Lock-in Period?

When one invests in a ULIP, the plan tends to be for the long term. After all, ULIPs are known to be plans that work best in the longer duration rather than in the short run. Most experts would also advise you to maintain your ULIP for as long as possible, preferably at least beyond the lock-in period of the plan.

But what is the lock-in period of ULIPs? How long is it? And why should your ULIP plans be maintained for the long term? Let’s find out.

Lock-in Period in ULIPs

There is a lock-in period applicable to almost all ULIPs, meaning they cannot be surrendered by the customer during this period. For most of these plans, the lock-in period applicable is five years.

A ULIP, like most other insurance plans, can be surrendered and the policyholder can receive a surrender value. However, in the case of ULIPs, this is only possible after the lock-in period, i.e., the initial five years.

Why Should You Not Surrender ULIPs After Lock-in Period

There may be various reasons why a policyholder may feel the need to surrender a ULIP after the end of the lock-in period. Most people tend to do so because they feel like their ULIPs are not performing well.

However, remember that ULIPs tend to work better in the long term through the power of compounding. This refers to the principal amount being invested in funds through your ULIPs increasing each cycle through the accumulation of previous interest. Thus, your ULIP returns, meaning the amount you earn from your ULIP investments, tend to grow bigger each cycle.

You can get a better idea of what sort of earnings can you expect over time using a ULIP returns calculator. You may find that your ULIPs earn much lesser in the first few years but may show better scope for growth in the later years.

Let’s take a closer look at the reasons why you should not surrender your ULIPs right after the lock-in period.

  • Plans are ideal for long-term

ULIPs, meaning Unit-linked Insurance Products, tend to work better for the long term rather than the short run. They tend to perform better when maintained for a longer duration. Using a ULIP returns calculator can help you figure out why it is beneficial for you to not surrender your plan right after the lock-in period, but rather maintain it for the decided duration.

  • Some fees cease after the lock-period

If you are well aware of how Unit-linked Insurance Plans function, you may know that there are a number of fees and charges associated with ULIPs. However, a number of these fees and charges get covered within the lock-in period. Hence, there are lesser deductions from your premiums after the lock-in period is over, which means that there is a larger premium amount that gets directed towards your investments. Hence, you may end up seeing better growth in your investments after the lock-in period is over.

  • You may not be able to fulfil your goals

It is advised that when you buy ULIPs, you align them with some of your long-term goals, such as your child’s education, retirement, or a big purchase. Along these lines, many people tend to buy ULIPs with a long-term goal in mind. They seek to achieve this goal with the returns they earn from their Unit-linked Insurance Plan. When you quit a ULIP after the lock-in period, you may also quit on the progress you may have made towards achieving that goal. If you do so, you may have to start rebuilding your finances for your goals. Instead, it may be better for you to continue with your ULIPs and stay on track to achieving your goals.

  • No loyalty additions

Loyalty additions are earnings that you may accrue over the years, that get paid along with your maturity benefits. If you quit your ULIP right after the lock-in period, you will only be eligible to receive the surrender value instead of the entirety of the maturity benefit. This means that you will not earn or receive any loyalty additions.

These are a few of the reasons why you should stay invested in your ULIPs well beyond the lock-in period. If you seek to reap the best benefits of your Unit-linked Insurance Plan, it is advisable for you to stay invested in it for as long as possible. You may consult your insurance advisor to understand how to manage your ULIP better so as to earn the best possible returns.