ULIPs have become a popular investment instrument in India, allowing you to save tax on premiums paid. They are also crucial in financial planning.
ULIPs provide coverage and assist you in investing your money to achieve your wealth creation objectives. You can invest in a combination of equity funds and debt with the help of these plans, which provides good returns.
What exactly is a ULIP?
The Unit Linked Insurance Plan (ULIP) is an investment and insurance tool in which the life assured receives life insurance as part of their investment plan. One of the unique benefits of ULIP is the ULIP tax benefits, which can be selected throughout the policy term and at maturity.
7 Things You Should Know About ULIP Tax Benefits
ULIPs are popular tax-saving instruments due to their higher returns and shorter lock-in periods. Let’s go over seven facts about the tax advantages of ULIPs:
1. Tax Savings on ULIP Premiums Paid
Under sections 10D and 80C of the ITA of 1961, a policyholder can claim a tax deduction of up to Rs.1,50,000 on policy premium amounts paid towards ULIPs. This is if you have opted for the old tax regime. Under the new tax regime, premiums of up to Rs.2,50,000 are eligible for tax deduction. Continue the ULIP policy for five years, and you can be tax-free.
2. Maturity Tax Benefits from ULIPs
ULIP is a market-linked investment plan that offers tax-free maturity amounts under current laws such as Section 10 (10D) of the Income Tax Act of 1961. If the plans are purchased after April 1, 2012, the premium must be less than 10% of the sum assured to qualify for ULIP tax benefits at maturity.
If the yearly premium is less than 20% of the sum assured, the maturity amount can be tax-free for people who purchased plans after April 1, 2012. In case of the demise of the life assured, the death benefit is also tax-free.
3. In the event of demise, withdrawals are tax-free.
In the event of the policyholder’s untimely demise, the family is entitled to a sum assured amount in addition to the returns generated by the ULIP plans. The payment is tax-free under Income Tax rules.
4. Tax Advantage – Partial Withdrawals
In the case of ULIPs, partial withdrawals are tax-free. If you withdraw money from a ULIP plan after the 5-year lock-in period, you do not have to pay taxes on those withdrawals. The condition is that the withdrawal amount does not exceed 20% of the fund’s amount or value.
5. Deductions for additional expenses
ULIPs allow customers to increase their investment by purchasing top-ups. These top-ups are also eligible for income tax deductions under sections 80C and 10D.
6. Long-Term Tax Advantages
For a long-term investment, you can take advantage of ULIP tax benefits. The lock-in period is approximately five years; you profit for at least five years by saving tax on your premiums. If you keep your policy, you can get more tax breaks for ULIPs.
7. Investment, life insurance, and tax benefits:
Unit-linked insurance plans outperform traditional insurance plans, PPFs, and mutual funds. Life insurance protects your life but does not help you build wealth. Mutual funds, on the other hand, provide good returns but no insurance coverage. ULIP plans, on the other hand, serve as a bridge and offer the added benefit of tax savings.
ULIP Features and Benefits –
A ULIP plan’s primary goal is to provide maximum wealth appreciation on your investment through market-linked tools and returns. These plans also offer extensive life insurance benefits to you and your family for the policy term.
1. Select and switch between funds.
ULIPs allow you to switch between equity and debt funds anytime during the policy term. A certain number of switches are permitted within a fiscal year without additional payment. To learn more about whether your ULIP plan offers accessible switches, and its premium costs, access the ULIP calculator online.
2. Withdrawals in Part
Initially, all ULIP plans have a five-year lock-in period. However, a policyholder can choose a fixed number of withdrawals from the accrued fund after the lock-in period. You shall not be charged any additional fees.
3. Premium Redirection
When investing in ULIPs, you can redirect your future premiums anytime between the available fund options. You must provide the policy number and the type of fund to which you are directing your tips. These details will help you evaluate and be prepared for ULIP.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.