Finance Blog

Why surrender your ULIP plan when you can gain in the Long Term?

ULIPs are a great way of growing your wealth in order to accomplish your life goals. It also provides you the added benefit of life insurance cover for your loved ones. ULIPs are designed to provide the investor with long-term benefits. But there are many investors who are sceptical about how beneficial it could be for them and try to surrender the policy immediately. While there could be reasons behind them surrendering the policy so early; We have listed below reasons as to why you should not surrender your policy and what are the benefits that you can enjoy with a policy like ULIP.

What is ULIP?

ULIP is a life insurance policy in which the investor gets dual benefits of investment and insurance. One part of the premium that they pay for the policy is directed towards providing life insurance cover. The other part is used for investing in market-linked funds. You have the option of investing in equity funds if your risk appetite is high and you want higher returns. Or you can go for debt fund investments if your risk appetite is low, and you want sturdy returns in the long run.

What is the lock-in period?

When you invest in a ULIP, you will notice that there is a lock-in period of 5 years. Now, what is this lock-in period? A lock-in period Is that period of time during which you cannot withdraw or access the money that you have invested in the funds. Even if you have paid the premium for the policy and you want to surrender it, you will still not be able to access the funds until the end of the lock-in period. If you want to do partial withdrawals, you will be able to, once the lock-in period has ended and not before that.

Why should you not surrender your ULIP?

As a ULIP investor, you might feel that the policy is not giving you the returns that you expected or that your investments are getting impacted too much because of market risks. These reasons might make you consider surrendering your policy. Listed below are reasons why you should hold on to your policy instead of surrendering it

  1. Substantial returns

No matter what type of investment you make in the market; it does not provide quick returns to anyone. Certainly not returns of larger amount. Most investors who invest in the market are there for the long run. They know that the returns they get over longer period of time will be much greater than those investors who stay in the market for short period of time. By balancing your investments between equity and debt funds, you can ensure that for the duration of your policy, your returns will get accumulated enough to match your expected rate of return. You can use the ULIP return calculator on your insurer’s website to get a better idea.

  1. More secure

There are many financial instruments that you can take advantage of when it comes to investments. Mutual fund is another such financial instrument. However, compared to ULIPs, mutual funds mostly invest in the equity markets. Equity markets have a higher risk factor, which means that the investments made in these markets are more exposed to market risks. The returns that you could get in the mutual funds could be lower than what you could expect. The ULIP benefits on the other hand provide you with the opportunity to invest in both equity funds and debt funds. This helps in balancing investments. Investing both of these funds ensures that your returns do not get impacted due to the market risk.

  1. Transparent portfolio

As an investor you would want to know where your money has been invested. You do not get that kind of transparency when you invest your money in mutual funds. In ULIPs, whether you invest in equity funds or debt funds, you can track your portfolio, which gives you an idea in which stocks, securities, and bonds the money is being invested.

  1. Insurance cover

In a ULIP, one of the benefits you get is life insurance cover. The life insurance cover dedicated in a ULIP secures the financial safety of your loved ones. In the event of your untimely demise, the death benefit that they get will help them take care of immediate expenses and avoid any financial uncertainty for a period of time.

The next time you feel that you should surrender your ULIP, do keep these reasons in mind as to why a ULIP provides you benefits in the long term rather than the short term. To know about more such benefits, get in touch with your insurance advisor.

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