ULIP renewal: 5 things you need to know (Detailed Analysis)

Usually, such policies offer you the flexibility of paying your insurance premiums upfront or annually. To add more wiggle room, the IRDAI has also increased the grace period for paying premiums for ULIP renewal by an additional 30 days. It came into effect after taking into account the inconvenience faced by the policyholders. Here, we take step by step through the ULIP.

How do you pay your premiums during the policy tenure? 

Being long-term policies, premiums for life insurance products are either paid upfront via the single premium policy or annually through regular premium policy. For convenience, people prefer to buy regular premium policies with a limited payment option. With the limited payment variant, you pay premiums just for specific years instead of paying them throughout the course of the plan. For instance, when your term insurance policy is for a tenure of 20 years with a limited premium payment term of 10 years, you pay premiums for 10 of those years, but can enjoy coverage for the whole 20 of them. You may also get the option of monthly or quarterly instalments in regular premium policies. Again, this does not hold true for every insurer.

What do you need to know about renewing your ULIPs? 

  • In the case of ULIP renewal, the grace period is 75 days for the first 5-year lock-in period. Following this, the amount is kept in a discontinued fund until the money is paid back to you.
  • For those who opt for annual premium payments, the premiums need to be paid on the date of renewal which is one year after the due date of the previous premium paid. After the relaxation of rules, the grace period for those who fail to make annual premium payments has been extended to 30 days.
  •  If you choose to pay premiums each month, the grace period offered to you will be 15 days.
  • The grace period is a boon for those who might forget to renew their policy or lack sufficient funds to pay up. The insured gets to retain their coverage during the grace period.
  • However, if they fail to pay within the specified period of time, the policy becomes invalid, which would further get reduced to a paid up policy had it obtained surrender value. In that case, it will give you a total of 2 years for policy revival.

ULIPs come with equity advantages. Hence, they can attract better returns compared to any other insurance product. Through various funds, ULIPs invest your premiums in several asset classes. Historically, tax-saving funds are believed to generate good returns, mostly in double-digits.

Discontinuing premiums in ULIPs

If you suspend payment of premiums on ULIP within 3 years of its commencement, you may lose the benefits of insurance cover. But if you go for ULIP renewal, a few insurers may allow renewal within a predetermined period after discontinuation. If you decide to discontinue for some reason, you get paid the predefined ULIP surrender value by the insurance company. And this sum gets credited to you at the end of the renewal period or maybe at the end of the third year of the commencement of the policy (which is normally at a later stage).

If you discontinue the payment of premiums after three years, your insurance policy gets terminated. If you do not opt for ULIP renewal during the revival period , you will receive the surrender value. If you had opted for an insurance cover-which comes with an additional fee-you will get it from the insurer. One must find out his/her ULIP fund value, in case he/she wants to avail the insurance cover. Till the time the fund value is lesser than the annual premium, he/she can avail the same. If the former is greater than the latter, the insurer terminates the ULIP and the fund value is paid back to you.

In case of lock-in periods (5 years), you can either opt for ULIP renewal of the discontinued policy or go for withdrawal barring any insurance cover. In that case, the insurer gives you 2 options-it sends a notice to you within 15 days after the expiration of the grace period of the policy. If you go for withdrawal within 30-days notice period, the insurance company reimburses the returns of the discontinued policy at the end of the lock-in period. Next scenario is if you choose ULIP renewal within two years of its discontinuance.

Note: ULIP renewal should be done before the lock-in period terminates.