ulip

What will happens, if I don't pay the second year onwards premium for ULIP?

I bought a ULIP plan 50,000/year last year (icici wealth builder 2). After almost 1 year, I realized it's a very bad product. The current value is ~48,500. I want to cancel the plan. Can I get it stopped officially? ICICI folks are very non-responsive on this.

Asked
riddhi

A Unit Linked Insurance Plan (ULIP) is a unique tool that is the outcome of amalgamation of insurance and investment. A part of the premium paid is used to provide insurance cover to the investor, and the other part is invested in equity and debt instruments. Each policyholder can select a personalized investment mix commensurate with his investment objectives and risk appetite. The NAV of the units so allocated is calculated on a daily basis.

Surrendering a ULIP before its lock-in period of 5 years is permitted, but it has repercussions. Exiting within the lock-in period would mean serious erosion of the premium that you have already paid. Though the ULIP was surrendered before the five year lock-in period, the investor will receive the money only after the lock-in period is complete. It means that though you may take the decision to surrender your policy after 3 years, you will receive the money only after 5 years. The insurer is entitled to deduct certain discontinuance charges before moving the balance of the fund's value to a separate fund known as the Discontinued Policy (DP) Fund. Even during the period when the amount lies in the DP Fund, the insurer can levy fund management charges, not exceeding 0.5% of the amount of the fund. However, it is important to note that the DP Fund will continue to earn interest. These are the reasons why there is a difference between the NAV at the time the discontinuation decision was taken and the amount that the investor actually recieves.

The investor also has an option to revive the discontinued ULIP within 2 years, but before the end of the five year lock-in period. To do so, the investor will have to pay all premiums that are unpaid and the discontinuance charges that were levied earlier will be added back to the fund. Certain charges like policy administration charge, premium allocation charge, etc. may, however, not be reversed.

These provisions are meant to discourage surrender of Unit Linked Insurance Plan. Exiting a ULIP before the expiry of its lock-in period or even right after the lock-in period may not yield optimum result, thus jeopardizing the long term goal with which you invested in it. Thus, it is necessary to first analyze your investment objectives and fully understand the repercussions of exiting ULIP. For further detailed discussion on the same, you can contact Groww.

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