Home >Money >Personal Finance >Should you opt for staggered settlement of maturity payout for Ulips?
Ulips have four kinds of cost heads. Photo: Mint
Ulips have four kinds of cost heads. Photo: Mint

Should you opt for staggered settlement of maturity payout for Ulips?

  • Typically, on maturity of an Ulip, a lumpsum is paid. The 2013 regulation allowed insurers to pay this value over five years in instalments
  • Even if you opt for partial settlement now, you can withdraw full maturity amount if you need to do so

The Insurance Regulator and Development Authority of India (Irdai) on 4 April allowed life insurers to extend the option of staggered payments over a course of five years, even for policies that do not have the option of partial settlement, to offer respite to the holders of Unit Linked Insurance Plans (Ulips) from the ongoing market volatility.

Typically, on maturity of an Ulip, a lumpsum is paid. The 2013 regulation allowed insurers to pay the maturity value over a five-year period in instalments but it was left to the insurers' discretion whether they want to include this feature in all their policies or not. In the wake of markets crashing as a side effect of covid-19, all unit-linked products now have the option of partial settlement or staggered withdrawal of the maturity payout for policies maturing up to 31 May but should you go for it?

Note that insurers are reaching out to policyholders to inform them that such an option is available. You may receive e-mails and SMSes in this regard. If you do want to go for partial settlement, you will have to revert to the company either through a link sent to you or by sending an e-mail from the registered e-mail id to the insurance company. You can stagger the payouts for a period of five years and according to the regulations, a minimum of 20% has to be paid each year.

Anil PM, head - legal and compliance, Bajaj Allianz Life Insurance Co Ltd said policyholders are told upfront that Ulips are subject to market risks. Since these investments are done over a period of time, the policyholders would’ve stood to gain in terms of what they’d contributed and what the current fund value. “But because the markets have dipped by about 35% in the last three weeks, a significant part of the earnings would’ve wiped away. Historically, after such a crash there’s always been an upside and if policyholders want to participate in the rise, they can go for the partial settlement option," he added.

Remember that even if you opt for partial settlement now, if at any point you feel the need to withdraw the complete maturity amount, you have the option to do that. For instance, if you withdraw 20% of the maturity payout this year, another 20% next year and want to withdraw the remaining 60% in the third year, it's possible.

“You stay invested for a period of 10-15 years and Ulips are high-cost in any case so they would’ve not yielded you much so I’d say take out the money on maturity. If you are facing a liquidity crunch, instead of withdrawing from your EPFO account, which gives you compounded risk-free returns, you’d rather withdraw the maturity payout on your Ulips, which give low returns," said Mrin Agarwal, financial educator, founder director, Finsafe India Pvt Ltd and co-founder Womantra.

If you're not facing a liquidity crunch, Agarwal said you could choose to take the staggered payment option because you have the freedom to redeem the lumpsum at any point in the next five years.

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