//Can I withdraw money from my life insurance?

Can I withdraw money from my life insurance?

Of course, you can withdraw money from your insurance policy. There are quite some ways, It all depends on your contract. For example: You can partially withdraw money from ULIP plans. You can avoid loans and breaking your fixed deposit in case you require a large sum.

Withdrawing money from ULIPs

According to IRDA norms, policyholders can partially withdraw thrice during the entire policy term up to a maximum of 25 percent of the fund value at the time of withdrawal, linked to defined life events. These life events include partial withdrawal for higher education, children’s marriage or critical illness (self and spouse) or buying or construction of a residential property. The partial withdrawal feature of ULIP makes it a unique and flexible plan.

You can partially withdraw if:

  • You are atleast 18 years of age.
  • You have completed the lock in period of 5 policy years.
  • all due premiums have been paid on time and the policy is in force.

Withdrawing money from traditional insurance policies.

Life insurance is a long term financial product. Though you may buy a policy with a specific long term need, you may require funds for various reasons like personal economic hardship. You can use the cash value, your traditional plan has built up to either surrender or take a loan against the policy. Term life insurance policies do not carry any cash value.

According to the new guidelines issued by the IRDA, which came into effect in February 1, 2020, surrender value norms have been revised to benefit policyholders. Surrender value is the amount you stand to get when you decide to make a premature exit from the plan, i.e. when you have decided to completely withdraw or terminate the policy before its maturity.

There are two types in surrender value – Guaranteed Surrender Value and Special Surrender Value. Higher of the two is paid as ‘surrender value’ at the time of surrender. If you’ve built up a sizable cash value, you may also choose to take out a loan against your policy. Life insurance companies often offer these cash-value loans at interest rates lower than a traditional bank loan.

And you’re not obligated to pay back the loan since you’re essentially borrowing your own money. Whatever money you borrow, plus interest, will be deducted from the death benefit when you die.

In the new surrender norms, a “Guaranteed Surrender Value” is acquired after paying the premiums for only 2 years now, which is 30 percent of the total premiums paid less any survival benefits already paid will be given to the policyholder, earlier it was 3 years.

If the policy is surrendered after three years, the policyholder will get 35 per cent of the total premiums, less any survival benefits already paid. For the 4th to 7th year, the surrender value will increase to 50 per cent And if the policyholder surrenders the policy between the last two years before the policy matures, insurers will have to pay 90 per cent of the total premiums paid less any survival benefits already paid’ to the policyholder.

You always have the option to surrender your policy and receive the accrued cash value. But you’re relinquishing the death benefit when you surrender a life insurance policy, which means your heirs will receive nothing from the policy when you die.