November 21, 2023


Why You Must Not Surrender Your ULIP Policy?

You have invested in a ULIP policy, and you are happy with the returns. You are confident that your money is growing and securing your future. But then, something happens that makes you doubt your decision. Maybe you need some urgent cash, or you are not satisfied with the performance of your fund, or you have found a better investment option. You start thinking about surrendering your ULIP policy and getting out of it. But is that a wise move? Here, we will inform you why you must not surrender your ULIP policy and what are the benefits of staying invested.

What Is a ULIP Policy?

A ULIP policy combines life insurance coverage with investment opportunities. When you purchase a ULIP policy, you make premium payments, and these premiums are allocated into two main components.

The first part of your premium goes toward providing you with life insurance coverage. This is the sum assured that your chosen nominee will receive in the unfortunate event of your passing.

The second part of your premium is directed towards investment in a fund of your choice. These funds can be of various types, including equity, debt, or balanced funds. The value of this fund depends on how well the underlying assets perform and the prevailing market conditions.

Why You Must Not Surrender Your ULIP Policy?

Now that you know what is ULIP policy, it is time to discuss policy surrendering downsides.

Surrendering your ULIP policy means terminating it before the maturity period and withdrawing the fund value. However, this is not a smart decision, as you will lose out on many benefits and incur some costs. Here are some reasons why you must not surrender your ULIP policy:

  • One of the main advantages of a ULIP policy is that it provides you with a life cover along with investment. This means that your family will be financially protected in case of your untimely demise. If you surrender your ULIP policy, you will lose this benefit and expose your family to financial insecurity. You will also have to buy a new life insurance policy, which may be more expensive and have a waiting period.
  • If you surrender your ULIP policy before the lock-in period of five years, you will have to pay a surrender charge, a percentage of your fund value. This will reduce your returns and affect your wealth creation. Even after the lock-in period, some ULIP policies may have a surrender charge, depending on the terms and conditions. You should check your policy document carefully before surrendering your ULIP policy.
  • Another benefit of a ULIP policy is that it offers tax benefits under Sections 80C and 10(10D). You can get a reduction of up to Rs. 1.5 lakh for the premium paid under Section 80C, and the maturity proceeds are tax-free under Section 10(10D), subject to certain conditions. However, if you surrender your ULIP policy, you will lose these benefits and must pay tax on the fund value. You will also have to reverse the deduction claimed under Section 80C in the previous years if you surrender your ULIP policy within five years.
  • One of the key factors that determines your returns from a ULIP policy is the power of compounding. That means your money grows exponentially over time as you earn interest on your principal and the accumulated interest. The longer you stay invested, the more you benefit from the power of compounding. If you surrender your ULIP policy, you will miss out on this opportunity and settle for a lower fund value.

What Are the Alternatives to Surrendering Your ULIP Policy?

If you face financial difficulty or dissatisfaction with your ULIP policy, you do not have to surrender it. There are some alternatives that you can consider, such as

  • Partial withdrawal: If you need money for an emergency or a specific goal, you can opt for a partial withdrawal from your ULIP policy after the lock-in period of five years. This will allow you to access a part of your fund value without terminating your policy. However, remember that partial withdrawal will reduce your life cover and your fund value and may have some tax implications. You should also check the limit and frequency of partial withdrawal your policy allows.
  • Switching funds: If you are not happy with the fund performance of your fund, you can switch to another fund that suits your risk profile and investment objective. Most ULIP policies allow you to switch between different funds for free or at a nominal charge several times a year. This will help you to optimise your returns and align your portfolio with your goals.
  • Premium redirection: If you want to change the allocation of your future premiums, you can opt for premium redirection. That means you can direct your premium to a different fund than the one you initially chose. This will help diversify your portfolio and balance your risk and return. However, the premium redirection will not affect the existing fund value, only the future premiums.


A ULIP is a long-term investment with life cover, tax benefits, and portfolio management flexibility. Surrendering it means losing these advantages and incurring costs. Only do so if you have a strong reason. Instead, consider partial withdrawal, fund switching, and premium redirection to meet financial goals. Remember, a ULIP is a commitment to yourself and your family that should be upheld.

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