Deciding to commit yourself to long-term results rather than short-term fixes is as important as any other decision you’ll make in your lifetime. – Anthony Robbins
Just in line with this, all of you have dreams and aspirations that give you a reason to keep advancing. Most of these goals are big and require persistence from your end to realize them. However, great things often take more time. But in the end, they produce results that are more concrete, meaningful, and fulfilling. That is why it’s better to be patient and wait for long-term results.
Same is the case with long-term investments that require prudence and patience. In the planning and purchasing stage, you need to be prudent to choose the right instrument. Once you’ve invested, then you need prudence coupled with patience to manage and wait for returns.
When it comes to purchasing a holistic, long-term investment plan, you may know that the Unit Linked Insurance Plan (ULIP) is a favorable option to consider. However, not knowing how best you can reap long-term benefits from this policy, you may end up exiting it just after a short term. So, let’s help you understand.
What is Lock-In period in ULIP?
Lock-in period is the period during which you can neither surrender your policy nor withdraw your invested money. For ULIP funds, this period equals five years.
If you surrender the policy during this period, your insurance cover ceases to exist immediately. Although you receive the premiums paid so far, it will be accounted for various deductions like premium allocation charges, mortality charges, and fund management charges. So, it won’t be wise to surrender the policy during the lock-in period at all.
Why Exiting ULIP Just After Lock-In Period Is Not A Good Idea?
The reason why most people include ULIP in their investment portfolio is that it helps in long-term savings. However, many also quickly withdraw their money or surrender their policy just after the lock-in period finishes.
People mostly exit their ULIP plan after lock-in period when they feel that the fund value seems to be good and they are too impatient to wait any longer. In this way, they compromise a substantial sum which they would have received otherwise if they did not exit.
Here are a few reasons why you should not exit ULIP just after the lock-in period.
1. You Have Not Reaped All Benefits Despite Paying the ULIP Charges
The fund value may look good and may be at an all-time high after the lock-in period ends. However, that may be because of a sudden boost in market conditions. However, if you withdraw at this point, then your dream of creating a fortune may remain unrealized.
So, don’t compromise your long-term plans for short-term gains. To reap real benefits, keep your policy for at least 10 to 15 years. If your funds are not performing well, then use the switch option and invest in some other funds, rather than exiting.
Reputable insurers like Max Life Insurance offer six fund options to invest your money, along with providing 12 free fund switches in a year. Moreover, you are even allowed to make two partial withdrawals in a year. In case of a sudden emergency, instead of exiting the policy altogether, you can avail this facility.
2. There Would Be No Loyalty Benefits
Some insurers also offer loyalty benefits to the policyholders to reward them for their long-term commitment. Such benefits are additional to the returns and are paid annually. However, such loyalty benefits are provided to you only after a certain number of years, which is usually ten years. So, if you exit after the lock-in period, you will lose out on such benefits too.
3. You Have to Pay Surrender Charges
In the initial years, the fund value gets reduced due to certain necessary charges like administration charges, mortality charges, portfolio management charges. Also, when you surrender the policy, then surrender charges are also charged. So, initial years may not bring your way very high gains.
However, if you hold the policy, then as the years increase, there is a substantial fall in such charges. So, you can maximize your returns by saving the surrender charges and other such charges in the later years.
4. You Lose Out on Tax Saving and Life Cover
ULIP’s apart from giving you returns on your invested money, also offer your family a protective cover. It provides them with financial support by giving them death benefit in case you meet with an untimely demise.
Moreover, ULIP is also a great tax-saving instrument as the premiums paid on it can be deducted from your taxable income, while the maturity benefit is also tax exempt. So, if you exit your policy after five years, you will also lose out on this life cover and tax benefit that comes with ULIP.
So, to maximize your financial gains, buy the best ULIP plan, and also remain focused on realizing your long-term goals. Therefore, don’t choose to exit the ULIP plan just after the lock-in period. Instead, play for the long term.
This will keep your family protected for long and will even give you a considerable amount of money, at the time of maturity. So, buy the best ULIP plan and accomplish all your big dreams, quite easily then.
Be patient and reap the full long-term benefits of ULIP!