Tax Benefits of ULIPs

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The awareness around the importance of savings via investments is growing significantly, especially among young adults. Many financial tools are available for investments and savings to secure your future.

ULIP plans offer a combination of life cover and investment opportunities to a policyholder. They are a popular financial tool as they help accumulate wealth for a better tomorrow via market-linked fund options.

Tax Benefits of ULIPs

All top insurance providers offer ULIP with a set of terms and conditions that can be unique to each. You can also pick a ULIP online by assessing the premium estimate using a ULIP calculator.

What are ULIPs?

ULIP, or Unit Linked Insurance Plan, is a financial product where the policyholder gets the benefit of both insurance coverage and market-linked returns. They are an effective tool to save, based on goals and objectives. You benefit from life insurance cover and investment choices between different funds like debts, equity, etc.

Under this investment tool, the insurer has complete flexibility to choose which funds they want to invest in based on their risk appetite. Another advantage of ULIP is the list of tax benefits it offers.

List of Tax Benefits of ULIPs.

ULIPS are known to be a great tax-saving investment option. Let us discuss this in detail below.

Tax-Free Death Benefit.

As ULIP offers life cover, the claim settlement amount given to the family members or nominees is tax-exempt in case of the policyholder’s death. Simply put, the entire death benefit lump sum given to the beneficiary is tax-free.

Tax Deduction On Premium Payout.

According to the Income Tax Act 1961, all premiums paid towards ULIPs are eligible for a tax deduction of up to ?1,50,000 per annum under Section 80C. Please note tax deduction is only applicable if the premium total is less than 10% of the total sum value. The premium is higher, but the deduction value is still locked at 10% only.

Partial Withdrawal.

Most ULIPs come with a lock-in period of five years. Once the lock-in period is complete, policyholders are eligible to request partial withdrawals for certain unforeseen circumstances. According to the Section 10D(D), the partial withdrawals are also tax-free, making ULIP an attractive investment option.

Tax-Free Maturity.

As per Section 10(10D) of the Income Tax Act, lump-sum received from an insurer due to ULIP surrender request, maturity, or partial withdrawal is eligible for tax exemption. However, there are certain guidelines to meet this requirement.

  • First, the premium payout value should not exceed 10% of the assured sum.
  • Second, tax exemption is only possible if the premium value paid for any matured plan does not exceed more than ?2,50,000.

Top-Up Amount Deductions.

Once the five-year lock-in period is complete, you also have the option to increase the investment by adding other fund options. These top-ups are also eligible for tax deduction. However, you need to ensure that the total premium after adding top-ups does not exceed the 10% limit of the assured sum amount.

Wrapping Up.

ULIPs, as a financial tool, offer insurance cover, investment opportunities, and many tax benefits, making it a valuable option to enhance your financial portfolio and safeguard your future.

Always remember to check all the detailed terms and conditions of any ULIP before finalizing one. Moreover, even though these tax benefits are promising, laws around taxes can change randomly, so before investing, ensure you go through the tax rules and plan details to make the right decision.

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