Can partial withdrawal affect my ULIP sum assured value?


ULIPs (Unit Linked Insurance Plans), is the kind of insurance plans that combines the benefit of mutual funds with the benefit of life insurance in one plan or product. These plans provide market-linked returns along with life insurance coverage. The premiums that you pay for your plan get adjusted for the relevant charges which are mentioned beforehand. The net premium is then invested in a fund that is chosen by you such as equity, debt, balanced, etc.

ULIPs are insurance plans that are available and expressed as a percentage or multiple of the premium paid. In the case of death, higher of the Sum assured or the Fund Value is paid. Thus, the life cover promised under ULIPs is guaranteed to be payable on death. The premiums you pay would be subject to certain charges before they are invested in the chosen fund. These ULIP charges include the premium allocation charges, administration charges, fund management charges, mortality charges, etc. and are deducted every year or every month depending on the type of charge and policy terms.

You can take the help of the ULIP return calculator to check the premium amount and ULIP returns. On the basis of the premium amount and tenure of the policy, the ULIP calculator calculates the returns offered by a specific ULIP plan. Hence it is a helpful tool through which you can avail a ULIP plan that offers maximum returns on investment.

Partial withdrawal rules from life insurance policy

As per the new guidelines of the Insurance Regulatory and Development Authority of India (IRDAI) rule that came into effect on February 1, 2020. The guidelines state that life insurers will now have to launch revised insurance plans in the market after withdrawing the current life insurance plans on offer. There are few terms and conditions that needs to be followed to partially withdraw from a unit-linked insurance policy.

The new rule states that the policyholders get the option of partially withdrawing from the fund value three times during the entire term of the insurance policy. Earlier, the scenario was quite different, if a policyholder that is past the age of 60 years makes a partial withdrawal. The withdrawal amount was reduced from the sum assured permanently and the same would not get restored. However, there has been a change brought about by the new regulations.

Now, even post the age of 60 years, the sum assured gets restored to the original amount 2 years after the partial withdrawal is processed. If you plan of making a partial withdrawal, the good news is that there are no penalty charges applicable and you will not be taxed on partial withdrawal of funds.

Under section 10(10D) of the Income Tax Act, for life insurance policy where the premium payable does not exceed 10 percent of the sum assured, the amount received on partial withdrawal is exempt from tax. However, if you’ve purchased an insurance policy before April 1, 2012, make sure that the premium is not exceeding 20 percent of the sum assured for the proceeds to be tax-free. Make sure you read the terms and conditions of your plan to better understand these ULIP tax benefits.

Comments are closed.