What Should You Know About Partial Withdrawal from ULIPs?

Unit-Linked Insurance Plans (ULIPs) are unique financial products that are fast gaining popularity in India. With dual benefits of life insurance and market-linked investment returns, this combination makes ULIPs an attractive option for those seeking both security and wealth creation over time.

Think of a ULIP as a combo deal. It gives you two things in one: insurance protection (your financial security) and investment growth (your money working for you). You get the safety of life cover along with the chance to grow your wealth in the market.

But what if you suddenly need some cash before your term ends? That’s where partial withdrawal from ULIPs comes in handy. This feature lets you withdraw a part of your funds without closing your policy or losing your insurance cover.

In this blog, we’ll explain how ULIP partial withdrawal works, when you can make them, and how to use them wisely, so you never feel like your combo is wasted!

What is Partial Withdrawal in ULIPs?

Partial withdrawal means taking out a slice of your invested funds while your ULIP keeps working for you. Unlike surrendering your policy, partial withdrawal gives you access to your own money. You access some cash, but your insurance and investment journey continue smoothly.

How Do Partial Withdrawals from ULIPs Work?

ULIPs typically offer multiple fund options (equity, debt, or hybrid funds) that you can choose based on your risk appetite. When you make a withdrawal, the amount is debited from the fund(s) in proportion to your investment allocation. So, although the performance of the remaining fund will depend on the market, withdrawal can impact the final amount. Just remember, more slices now can mean a smaller return later!

You can withdraw a minimum amount as specified by the insurer.

When Can You Make Partial Withdrawals from ULIPs?

Partial withdrawals are generally allowed only after the policy has completed its five-year lock-in period. Additionally, partial withdrawal can only be made if the fund value exceeds a minimum threshold set by the insurer. This ensures that your ULIP remains invested long enough to reap the benefits of market growth and insurance coverage.

Frequency of Partial Withdrawals

Most insurers allow a limited number of partial withdrawals per policy year, often one or two. This prevents frequent dipping into the fund, which might affect the long-term investment goals. Some policies may also set a maximum percentage limit on total withdrawals in a year. It’s important to check these limits in your policy document or consult your insurer.

Benefits of Partial Withdrawal from ULIPs

Access to Funds for Emergencies

Life can throw curveballs: sudden medical expenses, weddings, or urgent repairs. Partial withdrawal lets you utilise some cash without breaking your ULIP or losing your insurance protection. Partial withdrawal offers a convenient way to meet urgent needs while preserving your investment and insurance benefits.

Retain Insurance Coverage

Unlike fully surrendering your policy, a partial withdrawal keeps your life cover intact. You continue to enjoy the security of protecting your family while using some of your funds to meet immediate needs. This makes ULIPs more flexible and useful compared to traditional investment plans that don’t offer insurance.

Read more about the benefits of ULIP here!

Tax Benefits

Withdrawal from ULIP is taxable, but there’s some good news: partial withdrawals after the lock-in and under the maximum withdrawal limit are generally tax-free. Of course, we have to be on our toes with tax, so if you withdraw above the limits, it might attract some tax. Always best to check current rules or consult a tax advisor before making withdrawals.

How to Make a Partial Withdrawal from ULIP?

STEP 1. Confirm your ULIP has completed the lock-in period and you meet the minimum fund value criteria.

STEP 2: Inform your insurer either through email or via their customer service/ service centre (CAMS office) and give your policy details 

STEP 3. Furnish any other details/ documents that are required.  

STEP 4. Sit back and relax. The withdrawal amount will be credited to your bank account, usually within a few working days.

Quick Facts to Keep in Mind

• Partial withdrawal reduces your fund value, so your maturity benefit will be a bit smaller.
• Wait for the five-year lock-in before you dip into the ULIP.
• You can usually make 1–2 withdrawals per year, so no binge spending.
• Keep an eye on tax rules. Nobody likes tax surprises.

Conclusion

Partial withdrawal from ULIPs is a neat way to access your funds during emergencies or planned expenses without surrendering your policy or losing insurance protection. By understanding the rules, like the five-year lock-in, withdrawal limits, and tax implications, you can make smart choices that balance your short-term needs with long-term financial goals.

Explore our trending  ULIPto find the perfect blend of flexibility, protection, and growth for your financial journey.

Frequently Asked Questions

1. How often can I make a partial withdrawal from my ULIP?

Usually, 1 to 2 partial withdrawals are allowed per policy year. Check your policy terms to know the exact limits.

2. What happens if I withdraw more than the permissible limit from my ULIP?

Exceeding the allowed limits may cause delays, penalties, or tax liabilities. Always stick to your policy’s rules.

3. Is there a limit to how much I can withdraw from my ULIP?

Yes, there’s typically a maximum withdrawal amount, often tied to your fund value and capped at 20-25%. Your insurer’s policy documents will have all details.