Mind the lock-in period in your Ulip

financialexpress.com:

While life insurance policies offer financial protection and investment opportunities, one of the critical aspects is the lock-in period. It has significant implications for liquidity, reversal of tax benefits, and the overall utility of the policy.

The lock-in period in life insurance refers to a specified duration during which the policyholder cannot surrender or withdraw the invested amount without incurring penalties or losing benefits. This period is set by the insurance provider and is mandatory for certain types of life insurance policies, such as unit-linked insurance plans (Ulips) and some traditional plans like endowment and money back policies.

Duration of lock-in

All Ulips have a lock-in period of five years, during which partial or complete withdrawals are not allowed. After the lock-in period, you can withdraw full or partial amount, provided premiums for the first five policy years are paid. Adhil Shetty, CEO, Bankbazaar.com, says during the lock-in period, policyholders can switch between fund options offered within the Ulip, “It is good to get in touch with your bank for more clarity while switching funds.”

Pension plans or retirement plans may have different lock-in periods depending on the specific product. They often have longer lock-in periods to ensure that the policyholder stays invested until retirement.

Pros and cons of lock-in

Liquidity: Since the policyholder cannot access the invested funds during the lock-in period, this can be a drawback if he is in urgent need of finances and cannot withdraw from the policy without penalties.

Tax benefits: Life insurance policies offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act. However, these benefits are contingent upon the