How To Review Your ULIP Investments Before Surrendering

by Shiv Kukreja on October 3, 2012

in Investments

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at

Do you belong to a group of those people who bought a life insurance policy a few years back expecting it to deliver good returns and are regretting your decision since then cursing the sales executive who sold you a useless policy as the returns have not met your expectations?

If yes, then I’m sure you must have thought of doing something with your policy – either surrendering it or stop paying further premiums for it or consulting a financial advisor to discuss other alternatives before taking a final decision. Whatever you have done since then, I hope this article will help you in making further progress in the right direction.

First of all, there might be different reasons for different investors to explore the option of discontinuing their life insurance policies. Some of them are:

1. Unsatisfactory performance of the current life policy, as it was initially sold to you by a sales executive/relationship manager showing a very rosy picture or you bought it with a very little understanding

2. Not making financial sense to you anymore, as you have become more financially literate now and with better understanding of the markets and the products you have a view that ULIPs are not for you

3. ULIPs are too complicated for you to continue, as you don’t understand the various kind of charges involved in it, where your money is getting invested and other things involved in ULIPs

4. Availability of better investment options like mutual funds, gold or real estate and you have a shorter term horizon to invest

Options available to you

  • Surrender the policy and withdraw the whole of the Surrender Value or Fund Value
  • Stop paying further premiums, withdraw majority of the invested amount, keep the policy running and enjoy the life cover. This option is available only with old ULIPs.
  • Get the policy fully paid-up (in case of traditional policies)
  • Do a self-assessment (be your financial advisor for your investment)
  • Keep paying the premiums as you are convinced ULIPs outperform Mutual Funds in the longer run.

Before we move any further, we first need to understand the various charges attracted by these ULIPs. You can check these charges applicable to your ULIP in the “Sales Benefit Illustration” or the product brochures. A sales benefit illustration illustrates various charges, year by year, for the term of the plan so that you know where your money is exactly going, how much money is deducted as charges and what is finally getting invested. Here is the link to check a sample of a sales benefit illustration:

1. Premium Allocation Charges – These charges account for the initial expenses incurred by the company in issuing the policy e.g. cost of underwriting, medical tests and expenses related to distributor/agent fees. These are deducted upfront from the premium either annually, half-yearly, quarterly or monthly depending on the frequency of the premiums.

2. Mortality Charges – These charges refer to that part of the premium which goes towards the death benefit and are recovered by cancellation of units on a monthly basis.

3. Policy Administration Charges – As the name suggests, these are administrative charges and are recovered by cancellation of units on a monthly basis.

4. Fund Management Charges – These are the charges incurred to manage the investment portion of your premium and vary from fund to fund depending on the percentage of equity component in the fund.

5. Surrender Charges: These charges are deducted for premature surrender/termination of a policy and are capped at 15% from September 1, 2010.

Surrender Value: It is the sum of money an insurance company will pay to the policyholder in the event he/she voluntarily terminates or surrenders the policy before its maturity or the insured event occurring. In other words, it is the amount payable to the policyholder should he/she decide to discontinue the policy and encash it. This cash value is the savings component of most permanent life insurance policies, particularly whole life insurance policies. This is also known as ‘cash value’ and ‘policyholder’s equity’. The life cover provided by a life insurance policy ends with its surrender as it effects a termination of the contract between the insured and the insurer. Surrender Value = Fund Value – Surrender Charges

Fund Value: The value of the investment portion of your life insurance policy is known as Fund Value. Till the time surrender charges are applicable in ULIPs, surrender value is calculated by deducting the surrender charges from the fund value. Fund Value is paid in full once the surrender charges cease to exist, usually 5 years in new ULIPs. Fund Value = Total no. of units under the policy * NAV of the fund chosen

Let us also take a look at the rules that have been there before and after an important date in the history of ULIPs.

Rules governing ULIPs bought before Sept 1, 2010

Lock-in period of 3 years: Policies taken before September 1, 2010 used to have a lock-in period of 3 years only, after which you were allowed to surrender your policy and take away the fund value after getting the surrender charges deducted.

Surrender Charges: Surrender Charges used to continue after the lock-in period of 3 years. In some policies, these charges continue even after 5 years.

Minimum Premiums Payable: Three

Cover Continuance: This feature was available in older ULIPs wherein you were allowed to continue with the policy even after paying premiums only for the first three years. Your money remains invested in your choice of fund option and the mortality charges will be deducted to maintain the life cover. This was due to mis-selling by intermediaries. Life cover continues even after you surrender the policy or stop paying policy premiums.

Charges: Charges are relatively higher.

Rules governing ULIPs launched on or after Sept 1, 2010

Lock-in period of 5 years: The so-called New Ulips, which have been launched on or after September 1, 2010, carry a lock-in period of 5 years i.e. you’ll get the fund value only after 5 years if you’ve paid the premiums for all the 5 years. If you surrender the policy without paying even 5 premiums, then also you’ll get the surrender value only after 5 years but in that case your money will earn only 4% p.a. interest.

Surrender Charges: Surrender Charges cannot be levied after the lock-in period of 5 years if the policy term is 10 years or less and after 6 years if the policy term is more than 10 years. If you surrender after paying only the first premium, the maximum surrender charges as per IRDA can be Rs. 3000 (for premiums up to Rs. 25000) or Rs. 6000 (premium above Rs. 25000).

Minimum Premiums Payable: Five

Cover Continuance: The new ULIPs don’t offer this feature. If you stop paying premiums after the lock-in period, the policy will be discontinued and the value will be returned to you. Life cover ceases once you surrender the policy or stop paying policy premiums. It was one of the best features with the older ULIPs but I fail to understand why it has been removed from the new ULIPs altogether. The agents used it extensively to mis-sell ULIPs by telling their clients that they just need to pay only three premiums and after that they can either withdraw the investment or the life cover will continue even they don’t pay further premiums.

Charges: Charges are relatively lower

What to look for before surrendering your policy – step by step process:

  • Check whether the policy is bought before or after September 1, 2010
  • Check the various charges deducted till date: “Premium Allocation Charges”, “Mortality Charges”, “Policy Administration Charges”, “Fund Management Charges” etc.
  • Check the Surrender Value or Fund Value by making a call to the customer care centre or online logging into your account
  • Check the various charges to be deducted in the forthcoming years and do a self-assessment to decide whether the charges are justifiable for you to continue with the policy
  • Do a background check of the fund manager before you continue with your existing ULIP – who the fund manager is and what is his/her qualification? How long has he/she been in the fund management business and how has been his/her performance history?
  • Compare the performance of the fund vis-a-vis some of the good performing diversified mutual fund schemes over a period of one year, three years, five years and since inception. ULIP returns should be easily available on the company’s website. If the fund is underperforming consistently, you should seriously consider discontinuing the policy.
  • Compare the mortality charges of your ULIP with a good term plan with the same Sum Assured. Newer ULIPs usually carry high mortality charges as they don’t come under the cost caps, which gives insurance companies an opportunity to have a high margin on the mortality cost. It is most likely that the term plan would be offering a cheaper option to cover your life. If that is the case, then I think you should get your ULIP discontinued by encashing the fund value.
  • Take the help of a financial planner in case you are not able to understand the charges or the performance of the funds before taking final decision.

Reasons why you should not surrender your ULIP:

Most of the older ULIPs either carry very high costs in the initial years or have steep surrender charges or both. It is only in the later years that charges become somewhat reasonable and more money gets invested. So it would be a bad idea to surrender ULIPs with high costs in the initial years and a penalty for discontinuance.

There are a few old ULIPs, in which the policies carry surrender charges almost till the end of the policy term. You need to check your policy, the surrender charges involved in it and then decide whether it is worth surrendering or keep the policy till its maturity.

If you have taken one of the old ULIPs, then your life will remain covered even without paying further premiums with the “Cover Continuance” feature. In that case, if the mortality charges of future years are reasonable, then you may stick to your policy and hope the fund is managed in an efficient and professional manner.

As I mentioned earlier, you should not surrender ULIPs if you are convinced ULIPs outperform Mutual Funds in the longer run.

Reasons why you should surrender your ULIP:

There is lack of transparency in almost all sections of their workflow.

Fund managers of almost all ULIPs have failed to deliver and there is no certainty whether they will be able to deliver in the future years also.

Premium Allocation Charges will remain quite high in future years also which eat up a significant portion of your principal investment.

Term plans are the best insurance plans to get your life insured.

It is better to invest in investment avenues like mutual funds, Gold ETFs, PPF etc. or to pay-off any of your loans which carry a higher rate of interest than your ULIPs will deliver.

Documents you need to submit for policy surrender:

  • Policy surrender form – it should be easily available on the company’s website
  • Policy bond
  • A self-attested copy of your ID proof
  • Any cancelled cheque or bank attested bank statement or bank attested passbook copy for fund transfer

I have a personal view that one should never mix his/her investments with insurance. But, if somebody has already done that then the best option is to try not to surrender the policy in a real hurry, keep it alive as long as possible, study all the features and charges of your policy thoroughly and reap the maximum benefits out of it. It is generally advisable that you should wait for a longer period before surrendering your policy, as this will ensure the higher initial charges are spread out. But, if after doing the extensive research, you have decided to surrender the policy, then you should visit the nearest branch office of the company to surrender your policy along with the above mentioned documents.

{ 41 comments… read them below or add one }

Gaurav Bansal October 4, 2012 at 11:13 am

Good stuff Shiv !!
I hope that ppl will benefit out of it.
I just surrendered a ULIP I had , couple of weeks ago.
Ofcourse I didn’t have the privilege of your article then but then I had decided enough was enough.

There is only one thing I want to tell the world, echoed by the article as well, that do not mix insurance and investment. These are and should be kept separate. I made that mistake being coaxed into buying a ULIP and as correctly pointed out by you, the older policies (mine was 2005 based) had a huge overhead. In fact effectively i got only 74% of the premium I paid rest going in some xyz costs. Overall I had an opportunity cost to pay for it since the ulip never gave any returns and I was stuck with it forever. No surrender costs was the only saving grace.
Frankly if you ask me, I would rather take a term plan and invest in equity either using mf’s or stock than take the lumpsum and buy a ulip.


Shiv Kukreja October 4, 2012 at 8:58 pm

Thanks Gaurav !! I have been handling my personal and family’s investments for the past 14 years now. I feel fortunate enough not to have any ULIPs in my family’s portfolio. Once you make any ULIP investment, you’ll definitely find yourself in a big mess. To me, all insurance plans, including the term plans, are too complicated to understand. If you really need to have insurance, go only and only for term plans, that’s it.

Make the most of equity mutual funds, PPF, tax-free bonds, high yielding NCDs of good companies, property investments, home loan tax benefits etc. Why to go for ULIPs when you’ve equity mutual funds, PPF and ELSS – the best of equity & debts ??


anna October 4, 2012 at 12:01 pm

Hi Shiv Sir,

Tht was a really informative & a well written write-up on ULIPS..I am sure this is a topic in which many investors will relate themselves with it….
And I seem to fit into all the 4 categories tht u mention. And so I am also in a dilemma since the last few months ( as i am getting more financial literate).

I am a 32 yr old. My father invested in HDFC SL Youngstar -Growth option in April 2005( in my name) for a sum assured of 5 lacs with an annual premium of 50,000/- And paying term of 25 yrs. I have so far invested 3.75 lacs & the current fund value is approx 4.8 lacs. IRR is approx 5%. The various charges applied are as follows-

Monthly policy charge- 129/-
extra life benefit charge- 98/-per month
policy adminsitartion charge- 19/ pm.

Even a balanced equity fund has given CAGR of approx 14% for the same period. As per ur advice, i checked on the HDFC SL website for the performance. As per those figures, growth fund since its inception in Jan 2004 has given a CAGR 0f 14.95%. So why I do not see that in my fund value??

So wht do i do??
Today, i have a term plan, i invest in Equity Mutual funds & also have a few endowment policies. My dilemma is ,if i am paying for last 7 yrs, do i continue till the policy trem to reap the benefits??
“ULIPS outperform MF’s over a period of time”- Is this a MYTH or reality???

Kindly enlighten us…thanks !!!


Shiv Kukreja October 4, 2012 at 9:46 pm

Hi Anna… Thanks for your kind words!

Looks like you are paying Rs. 25,000 as the half-yearly premium. The difference in returns you’ve observed is probably due to the high overhead charges or due to the fact that you invested in April 2005 and the ULIP had already risen by then as compared to January 2004. Sensex was at around 6000 in January 2004 and 6500 in April 2005.

The difference could also be due to a sharp rise in the equity markets since April 2005, as the lump sum investments outperform regular investments when markets rise sharply.

Mutual Fund investment is my personal preference in all situations with all “ifs & buts”, even if it is a reality that “ULIPS outperform MFs over a long period of time” as MFs give me the flexibility of coming out of a poorly performing fund, say after 2-5-7 years of my investment, which I do not have in a poorly performing ULIP till maturity.

I do not have answer to “what to do now” as it requires a detailed analysis of your policy. You can consult some financial advisor like me nearest to you.


anna October 5, 2012 at 8:55 am

thanks for the reply…
I am now aware tht most financial planners like u & experts in ur field always insist not to mix insurance & investment


anna October 5, 2012 at 8:58 am

thanks for the reply…
I am now aware tht most financial planners like u & experts in ur field always insist not to mix insurance & investment. Still i dare request u to have a similar write-up on endowment plans. I am sure many pepole willl be enlightened by it. How to differentiate between a good endowmwn plan & a bad one??


Shiv Kukreja October 5, 2012 at 9:51 am

Again, why to mix insurance & investment ?? Buy term insurance and invest in PPF – a deadly safe & super combination.


Manshu October 5, 2012 at 7:49 pm

OneMint will NOT have many posts on endowment plans. I believe our time is better spent on other things, and the kind of comments such posts attract from insurance agents can get a real big nuisance and overhead.


gomathi shankar October 5, 2012 at 1:40 pm

hi shiv,
comprehensive and easy to understand article on a very important topic.i have a doubt regarding the tax implications of surrendering a ULIP.i have a policy which i started in dec 2007,paid three annual premiums and stopped.i remember reading somewhere that the surrender value is tax free only if if done after five years.should i wait till dec 2012 or can i surrender it now.kindly clarify my doubt.


Shiv Kukreja October 6, 2012 at 11:04 pm

Hi Gomathi… Thanks for these kind words!

If you had claimed tax deduction u/s 80C for the premiums paid in the respective financial years (2007, 2008 & 2009), then the amount of those deductions will be considered as your income of those years and shall be liable to tax in the respective assessment years (2008, 2009 & 2010) relevant to such financial years. You’ll have to file revised returns and pay tax accordingly. No deductions claimed, no taxability and hence, no revised returns.


Fooled by ULIPS October 8, 2012 at 10:12 pm

Hi Shiv,
Nice article and nice timing. I went in for a ULIP investment without knowing what I was getting into. The folks at HDFC marketed the product very well and since I wanted to insure my home loan, I thought it was a good investment. However, the fees associated were made clear after the investment was done. I was also new to investment and did not think much. Anyway, I found your article informative. I have been invested in the ULIP for 3 years now and paid a lakh in premium each year. I got fed up of the service and thought about closing the ULIP but realized that I will need to pay a 15% charge on the remaining funds to withdraw. That would mean a lot of losses. One of the options that I find useful to keep the ULIP active for the longer term without much spending is to guage the growth of the ULIP from the current point of time(what has been lost if lost). The fund value currently is around 20000 If the value goes below 150% of yearly premium then the insurance stands to expire. So what I plan to do, is to make my ULIP a paid up amount and keep the insurance benefits active by investing in small amounts on a monthly basis into the fund. This is called “topup” option in HDFC. So over a period of time, the ULIP value does not go below 150000 and there are also returns(provided the markets do well) in the long term. I can atleast try to make sure that I get back the amount that I am investing if not any interest on the invested amount. I think you must mention this too as an option in the article unless you see any downside to it. The only downside I see is that the amount I need to invest becomes large if the sensex/nifty suddenly tanks and goes below 12000/5000. Still I see this as a situation where the losses/gains are averaged out over the long term but the amount required for investing is small.

Some shocking things I found out about HDFC in the process
1. I was introduced to this scheme saying that 3 years of investment is sufficient and no more(my fault that I did not read the fine print) but the conditions that fund value should not go below 150% of yearly premium, and requirement of 5 years for investment for the 15% fees on withdrawl were not mentioned at all.
2. When I contacted HDFC to find out about my investment advisor, they provided the contact information , the same as mentioned on my online account. When I contacted him, he said that he had left HDFC 2 years back and was not working in insurance anymore. On bringing this up with HDFC they were completely ignorant of the fact that this guy had left their company. After some ugly discussions I got the number of a senior guy and he agreed that it was a mistake on their part. The contact info has not been updated on my account still though.


Shiv Kukreja October 9, 2012 at 7:51 pm

Insurance investment is like a ‘Chakravyuh’. You can enter it but the way to come out of it is very very difficult. Banking job was once considered a noble profession and the bankers as the wealth creators. Not any longer. To generate higher salaries & commissions for themselves, these sales agents (so called relationship managers of the banks) have been cheating on their customers in a big way. Incorporating insurance in the home loan package is the easiest way to sell insurance.

Mis-selling is rampant in the banks and the regulation is very weak to control it. CCTVs have been installed in the banks but most of the banking staff work as the thieves themselves. Once the banks are allowed to act as the insurance brokers, this mis-selling is going to increase multifold. I would never advise anybody to invest through the banks or the banking staff.

What you have done is a right thing but then there are some ULIPs in which the benefits cease to exist if the premium is not paid for the 4th & 5th year also. This whole mixture of insurance, investment & high charges is too painful to even think about it.


Fooled by ULIPS January 9, 2013 at 9:45 pm

Update on response from HDFC. I wrote to the HDFCLife folks about the person who sold me the policy misinforming me and also being misinformed over phone multiple times. Infact I was misinformed by their VP Nirmalya Majumdar along with the call center folks about the policy. However HDFC refuses to acknowledge this and says that the mistake is mine. I have wasted tremendous amount of energy in doing this and am completely frustrated now. If I surrender the policy now, I will lose 15% of the fund value which is at about 2/3rd the value of the invested money. So the loss will be pretty high. I have made my policy paid up for now and will take a call after 2 years to bring it back to “inforce” state and then withdraw the money. To all readers, HDFCLife has been rampantly misselling policies at multiple levels, and misinforming the users. Infact I know more about the policy that this stupid guy Majumdar guy. I dont know if it is worth the time and effort taking this up with the insurance ombudsman. I will be posting a separate blogpost somewhere to highlight the plight of their service, but wanted to put it up here in terms of the sequence of events for the benefit of the readers.

I have been having multiple issues with respect to policy no XXXX that I took with HDFC life in 2009. The initial process of getting the policy and signing up were easy. However, over period of time I have been having problems with respect to the terms and conditions in this policy. I did go through the policy documents initially, but have been misinformed by HDFCLIFE representatives at various points in time over the past 3 years. Let me start at the point when I took the policy,

1. When the policy was sold to me, I was clearly told that the premium payment of Rs. 100000 needs to be done only for three years and there would be no need of payments after that. That is however not the truth at all.
2. When I called up HDFCLIFE call center around 2 years into my policy, I checked with them if the above mentioned was true. I was informed by the call center representative that if I make my policy “paid up” after 3 years of premium payment it will continue provided the fund value is always above Rs. 150000(150% of annual premium). However if I made my policy paid up after 5 years the 150% will not apply. The policy would never lapse. I was taken aback by the fact that No.1 was not true, but then realized that I had been cheated by the policy seller and that HDFC Life call center representative was just clarifying the rules to me. I was also told that the policy can be withdrawn after 3 years without any charges.
3. Around 2 months back, when I called up the HDFCLife to confirm No 2. mentioned above that my policy can conveniently become paid up after 5 years without any condition of 150%, the person came back to me and denied that as a possibility. They confirmed that the policy will lapse at any point of time irrespective of the number of premiums I have paid if the value goes below 150% of annual premium. This was a terrible setback to me as I had planned to pay off for two years to complete 5 years of payment and hold on to the policy without any risk of losing it.
I then thought of a way to hold on to the policy without making annual premium payment but “topping up” the account once it became paid up after 3 years. I called multiple service representatives and confirmed if this is possible. I got confirmation from all of them that yes it is possible. My plan was to “top up” the account every year with around Rs. 20000 so that the fund value will never go below Rs. 150000. I wanted to check with my financial advisor mentioned in my online HDFC life account as to whether this was possible or not. At this point I wanted to withdraw my policy but was warned that I would have to pay 15% of my fund value as closing charges as opposed to what was said in point 2.
4. When I called the financial adviser he mentioned that he has left HDFCLife two years back. This came as a surprise to me as my belief was that atleast that information would be correct. I am attaching a snapshot of the adviser details in my account. After complaining to HDFC life this detail has not been changed on the website. After pursuing details of my financial adviser multiple times with HDFCLife, I was given the contact information of Mr. Nirmalya Majumdar to confirm the details.
5. As VP of a division, I would have expected him to provide me with correct details. He mentioned to me clearly in my conversation with him, that the top up option is possible after my policy becomes paid up. His exact words were “Sir, many of our customers use this option of topping up their account to keep their policies active in paid up state”. I finally thought I had a solution. However I was cheated again. He also mentioned that there were no fees associated with the topping up.
6. A few days before my policy was due(13th October 2012), I called HDFC Life again to confirm that the top up option is possible. This time, without flinching the call center representative told me that the top up option is not possible in paid up state. This came as a complete shock to me that the VP could give me wrong information.

To summarize my complaints,
1. HDFC Life representatives have been communicating different rules with respect to the policy at different times. If you folks are unable to understand the policies correctly(including VP level of people) how do you expect customers to understand such complex policies.
2. Rs. 100000 per annum is not a small amount. Depending on what was said to me at each point in time, I planned for my finances accordingly. Especially after such miscommunication, I am not ready to invest one extra rupee into this policy. I would have been interested to continue for two years and make the policy paid up after 5 years had the communication been correct in the beginning.

My expectations:
I have invested Rs. 300000 so far in this policy over a period of three years. As of Oct 2012, the policy value stands at approximately Rs. 2.1 lakhs. Already a loss of Rs. 90000.
My expectations from HDFC in order of priority,
1. Allow me to continue this policy in paid up state and allow me to “top up” the policy every year so that its value does not go below Rs. 150000. I will decide how much to top up and as communicated by Mr. Nirmalya there should be no charges associated with the “top up” process. This would make me effectively keep my policy active and covered for the rest of the duration of the policy.
2. Allow me to close the policy(after I take up another policy to cover me for the same amount) without any charges (15%) associated with closing this in paid up state, and also refund the losses that I have incurred with respect to opening this policy itself(~Rs. 90000). This amount has mostly gone into charges associated with this policy out of which I have gained nothing.

I expect a response from HDFC Life on this issue and hopefully get help in resolving these problems as soon as possible. I am not willing to pay additional premiums to bring my policy back in force and also not willing to reduce the premium which will ultimately reduce my cover. Please respond to me within two working days so that I can plan for any action to be taking on this policy and with/against HDFCLife.”


gomathi shankar October 11, 2012 at 12:36 am

Thank you Shiv for the reply.I had claimed tax deduction for that.So,if i surrender after dec 2012(after five years) i need not file revised returns.Is that correct Shiv?


Shiv Kukreja October 11, 2012 at 11:47 am

Yes, that is correct.


Nirav Mehta October 11, 2012 at 5:21 pm

Hi Shiv,
Greatly informative article. I had purchased HDFC ULIP (Unit Linked Endowment) in October 2006 and have been paying regular premium since then. I plan to completely surender my policy in a day or two. Kindly advise whether the surender value received will be taxable for me.


Shiv Kukreja October 12, 2012 at 10:01 am

Thanks Nirav!
No, the surrender value received will not be taxable.


gomathi shankar October 16, 2012 at 11:52 pm

Thanks for replying shiv.


Shiv Kukreja October 17, 2012 at 12:34 pm

You are welcome Gomathi!


praveen October 31, 2012 at 4:03 pm

Hi Shiv,
I congratulate you for such a nice information provided in this article on ULIP.

However I had a query about my investment. I hope I can get some help from the expert like you only.

“ I purchased an insurance plan ICICI Pru Life Stage Wealth II without much investigation, and now I have found myself trapped in it.
I purchased it in April 2012 with the initial annual premium of 50000. Total fund is divided into two segment ..multicap and income.
they deducted initial charge of 1800 and I started with total fund value INR 48,200.
after more than six months my fund value is still around 49,400.
I have Income tax expemption and a INR 500000 insurance on it.”

Now I need your suggestion here.. if I should continue with this or just stop.paying my premium next year//
can you give an expert advice on this policy..??


Shiv Kukreja November 1, 2012 at 9:07 pm

Thanks Praveen! 🙂

Please dont mind but we cannot take such individual queries on this forum. Firstly, it is very time consuming to anaylyse these ULIPs or other insurance policies and then readers start asking about their own individual policies. We cannot have different policies for different readers here. You should get your policy analysed from an unbiased financial advisor. ULIPs taken after September 1, 2010 carry a lock-in period of 5 years.


Ritz November 1, 2012 at 12:19 am


A very informative article, but I think surrender charges are capped at Rs. 6000 or 15 % whichever is low.


Shiv Kukreja November 1, 2012 at 9:12 pm

Thanks Ritz for pointing it out!
The info is there above in the post but not at a single place – Surrender Charges “are capped at 15% from September 1, 2010” and “the maximum surrender charges as per IRDA can be Rs. 3000 (for premiums up to Rs. 25000) or Rs. 6000 (premium above Rs. 25000)”.


Shailesh November 15, 2012 at 8:28 pm

I bought ULIP policy in the year 2008 with 5 year premium and 3 year lock in period. With premium of 2 lacs per year. I have so far done with 4 years and recently paid premium for 5th year. I can see my fund value as 9 lacs after 4 year (so over all 1 lac profit). I am not sure what I should do after 5 years. I have a feeling that I am not getting the returns that were projected to me at the time of selling this policy to me. This is great article for understanding how things works, I will give a call to customer care to know things that were mentioned here.
But what do you suggest I should do, shall I wait for few more years to see if anything changes or shall I surrender the policy.


Shiv Kukreja November 16, 2012 at 11:55 am

Hi Shailesh… I think you should stop paying further premiums (if it does not harm your policy benefits or your life cover in any ways) and monitor the performance of your plan some more time. If it continuously underperforms the markets, then you should come out of it and invest the proceeds in some good performing diversified mutual funds.


Ritz November 17, 2012 at 1:40 am


I do not agree with this suggestion to surrender the policy. You have bought ULIP in 2008 when the premium allocation charges & markets were at the peak. Now you must be paying very less charges. and if you having a profit of 1lacs even after the recession. I think, the fund must be performing well.

You also have to consider other factors your age factor, if you stop paying premium, mortality charges will still be deducted. and check if you would be able to buy a term plan of the same insurance cover depending on your age and health conditions.


Shailesh January 3, 2013 at 9:56 pm

@Ritz I think I will wait, I see that I am still in profit this is my 5th year, so after it, its upto me to pay the premium or not. I had a talk with customer care and they told me there will be no premium allocation charge after fifth year and no management charges, so probably I will have some percentage saved. I will wait for 1-2 year more and see how far profit goes. Else I am going to surrender my policy or do partial withdrawal.


Manoj January 3, 2013 at 8:01 pm

I purchased ULIP policy in year 2008 with amount 40k per yr and at present i have paid for 4yrs with amount 1.6lacs. As of today the fund value is showing 1.4lacs which is less and its not performing well.. So please suggest me if I need to invest for the 5th year or surrender the policy.. and also wanted to know if there is any surrender charges applicable!!


Shiv Kukreja January 3, 2013 at 8:43 pm

Hi Manoj… It is a very common problem with ULIPs and it is primarily caused by high “Premium Allocation Charges” in the initial years. What to do? – You should check your policy documents to know the exact terms and conditions of your policy or get your policy analysed from an unbiased financial advisor. I would say stick to this policy at least till the completion of 5th year.


Prafull January 21, 2013 at 11:38 am

Hi Shiv,

I had taken Ulip frm Reliance life .. Automatic investment plan-Regular for Rs 10000.00 premium being paid half yearly. On jan 9th 2013 I have completed 5yrs of policy and my fund Value is around Rs 59700.00 approx against Rs 55000 invested. Should I continue this policy or surrender it????

Plz advise
On each premium of Rs 5000 paid in july and jan , reliance charges Rs 250 in each premiun as allocation charges.


Shiv Kukreja January 24, 2013 at 12:42 am

Hi Prafull… It is very difficult to advise on ULIP investments without analysing them. To me, Rs. 250 is on a higher side, I would have surrendered it. You should get your policy analysed from an unbiased financial advisor and then take your decision.


Rajendra March 13, 2013 at 5:00 pm

Hi Shiv, Thanks for an excellent article. But I was looking for information about tax implication regarding ULIP based pension plan (It is from HDFC) which does not have 10 (10D). This policy does not have insurance component. It is more than 5 years i.e. I have paid 5 premiums of Rs. 1 Lakh each and its surrender value is barely above Rs.5 Lakhs. So, if I surrender it what are tax implications? Policy terms say that 1/3rd of this will be tax free and 2/3rd will be taxable. But 1/3rd or 2/3rd of what!! The gains (if there are) or the entire value. None of the Insurance wizards are able to give a clear answer, some say this way and some say that way. If it is entire value it’s CRAZY, right? That’s a saving I invested in ULIP, paid tax on it, so is the 2/3rd of whole amount taxable? I found one article at and it gives a very complex explanation. It will be great if you can demystify this at the earliest.. Thanks.. Rajendra


Shiv Kukreja March 14, 2013 at 12:44 am

Hi Rajendra… thanks for your kind words!

I know it would be painful for you to know this, but if you surrender this pension plan, the entire amount (the principal plus the interest or bonus) would be taxable. So, if say the accumulated amount is Rs. 5,25,000, then the entire amount would be considered as your income and taxed accordingly.

The 1/3rd corpus to be tax-free and 2/3rd corpus in the form of regular pension to be taxable is applicable only if this pension plan completes its full duration.


Kumar March 23, 2013 at 8:38 pm


Great article and nice summary about ULIP..
I need your help. I have bought HDFC SL CREST ULIP and I have cancelled it during my free look up period with the documents you have mentioned here.

Please advise if this is a good move? But i could see various charges if I cancel .


Shiv Kukreja March 25, 2013 at 2:10 pm

Hi Kumar,

I think this is a good move and it is my personal opinion. I think nobody should mix his/her equity/debt investment with the requirement of life cover. It is of no use to get stuck in a life insurance policy for too long, with difficult exit routes and high commissions paid to the agents/service providers. Cancellation charges are very nominal if you do that during the free look period. I think you should thank God for not getting trapped in it. One should buy term insurance and invest in some good mutual funds.


Kumar April 1, 2013 at 7:14 pm


Thanks for your comments.

Can you advise/suggest on the term insurance and mutual funds here? Thanks in advance.


Shiv Kukreja May 14, 2013 at 11:57 pm

Hi Kumar… there are several posts here on OneMint which already have so much info on MFs, life cover needs and other topics also. Just go through these pages here and I hope you’ll get the required dose of info.


Ananth May 8, 2013 at 12:31 pm

Hai Mr. Shiv.,

That was an eye opener for me… really.., i’ve invested in ULIP and i started in 2008 with MaxLife paying 20,000 per year as premium and i’ve paid for 5 years continuously. Now i wish to stop paying the premium and wish to continue with the policy for some more time to get atleat the paid amount(1 Lac)., now it is around 98,000.

But MaxLife says Mortality charges would be levied, will this really affect and is my option to continue my policy without paying the premium advisable > thanks


Shiv Kukreja May 15, 2013 at 12:10 am

Hi Mr. Ananth,

It really depends on the terms & conditions of your policy what you should do with your insurance plan. But I think if the lock-in period has got over and there are no surrender charges anymore, one should get out of these ULIPs in most of the cases. Normally, I think the mortality charges of insurance-cum-investment plans are on a higher side than a pure term plan.


Ananth May 16, 2013 at 10:52 am

Thanks Mr. Shiv, yea., there are no surrender charges anymore, im planning to surrender the policy once atleast it reaches the invested amount.

Thanks once again


Shiv Kukreja May 16, 2013 at 11:31 am

You are welcome Mr. Ananth!


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