Facts To Know About ULIP Lock-in Periods

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There are several types of life insurance available these days. One that is gaining popularity is a Unit-Linked Insurance Plan. The reason people are looking for ULIP in India is because of their combination of life insurance and investment. The insurance company designs the policy in a manner where they use the premium of a policyholder partly towards insurance and partly towards the funds of their choice. It is the perfect instrument for individuals who want to safeguard their loved ones while simultaneously working on their long-term goals. 

When you consider buying this plan, it is important to know the meaning of ULIP, and its different components. One term that you will come across while buying the policy is the ‘lock-in period.’ It is important to understand the meaning of the lock-in period and its impact on your policy. 

Lock-in Period in ULIPs

The lock-in period of a Unit Linked Insurance Plan determines the period in which a policyholder cannot surrender or withdraw the policy. The lock-in period of ULIP is 5 years, and it is always recommended to keep your money in them for an even longer duration. This is because the this plan offers high returns in the long haul. 

Things to know related to the lock-in period

The lock-in period of a ULIP has a serious impact on the following factors:

  • Withdrawal
    ULIPs allow policyholders to make partial withdrawals. However, these withdrawals are possible only after the policy has completed the lock-in period, which in most cases is five years. Post the lock-in period, you may avail of the partial withdrawal facility. It is advisable to read through the policy document to understand how the feature functions.

  • Policy Surrender
    If a policyholder decides to surrender their ULIP before the lock-in period has ended, the procedure differs from that of surrendering after the lock-in period. When one surrenders before the lock-in period, the insurance companies transfer the fund value to the Discontinued Policy (DP) fund. The money is kept in the DP fund until the end of the lock-in period and then handed over to the policyholder after it. There is a standard interest rate of 4% in the DP fund until the end of the lock-in period. The interest rate is subjected to changes based on regulatory authority policies. 


  • Charges
    If one has surrendered their ULIP policy within the lock-in period, they may have to pay discontinuation charges. It depends on the terms and conditions of the plan. If the policyholder surrenders their policy after the lock-in period, they receive the fund value at the Net Asset Value (NAV). There are no discontinuation charges applicable if one has surrendered after the lock-in period. 

Most investors are aware that holding on to the money in their ULIP after the lock-in period can be beneficial in the long haul. With the help of the power of compounding, the long-term returns can grow many folds. When you buy a ULIP plan online, ensure that you read the fine print carefully.