The market has been suffering the adverse impact of the coronavirus pandemic. In India, the month of March witnessed various market uncertainties. This has forced the insurers to announce relief measures for Unit Linked Insurance Plans (ULIPs).
As per the Insurance Regulator and Development Authority of India (IRDAI), life insurance providers have to offer settlement options to people whose ULIP investments are maturing by May 31, 2020. However, if you are among the investors whose ULIP investment is maturing any time soon, consider the following pointers before settling the policy.
Points to Note before Opting for ULIP Settlements
- Only you (the policyholder) can exercise the ULIP settlement option so as to receive the maturity benefits in instalments under the plan.
- This option is only available for matured ULIP investments and cannot be exercised by beneficiaries of the policy in case of your death.
- The ULIP returns are based on the market performance of the funds. Hence, the number of fund units available at the time of maturity will be encashed at the ULIP NAV (net asset value) at the given point. The amount you receive in returns will depend on the ULIP performance of the market-linked funds as on the date of maturity.
- You (the policyholder) cannot postpone the maturity date. However, you can opt to receive the maturity amount in instalments.
- The number of withdrawals depends on the periodicity made available by your insurer – monthly, quarterly, half-yearly, or yearly. Also, the ULIP settlement period can be for a maximum of five years from the date of maturity.
- During these five years, you (the policyholder) can choose to withdraw the complete amount. The remaining fund units will be encashed based on the NAV rate on the given day.
- Know that the life insurance coverage under ULIP investment will not continue during the settlement period. So, in case you (the policyholder) die during this time, the beneficiaries of the policy will receive the remaining fund amount as on the date of intimation of death.
What Should You Do?
We understand that these are tough times. Many people are facing financial crunch and could be dependent on their life-savings to overcome the expenses. Settling the ULIP investments could look like a wise financial decision at this point, but hold on a second.
Before you go ahead and settle the policy, ask yourself the following question –
- Are you facing any financial issue?
- How important is the maturity amount to you at the given moment?
- Can you make do without this amount for a few months?
- Do you have any other investments to rely on?
Answering these questions will help you evaluate your current financial situation during the pandemic. This will help ensure that you do not make a hasty decision. If you are in dire need of financial help, choosing to settle the ULIP policy could be your best decision.
However, if you can do without the maturity amount, do not settle the policy just yet. Wait a few months/years for the market to recover. The chances are that you might receive higher fund returns in the near future as compared to the situation right now. So, make sure that you are making an informed decision before opting to settle your ULIP investments.
Ultimately, ULIP settlement is your decision. Despite everything, if you still decide to settle the policy, see whether you can invest the money in other investment instruments or towards your emergency funds. Doing this will ensure that yours and your family’s financial future are well secured.