Why is Everyone Talking About ULIPs? Find out!

Financial wellness is essential in today’s world. Investments and savings are the two most important methods to achieve financial freedom. Over the years, ULIP has acquired appeal as a viable investment and savings insurance option.

It provides both life insurance coverage and investment rewards via market-linked returns. They are suitable for building a long-term corpus and providing enough financial coverage. Inform us of everything about ULIPs.

What is ULIP?

(ULIPs) combine investment and insurance products. These plans provide the opportunity to build money while also acquiring the financial stability of life insurance. Under ULIPs, a part of your payment is dedicated toward life insurance, and the remainder is directed toward investments. Under ULIPs, many sorts of investment funds are accessible.

What Are The Benefits of Investing in ULIPs?

The following are some of the most essential advantages of investing in ULIPs:

1. Long-term goals

ULIPs are an excellent investment vehicle for achieving long-term objectives. If you have long-term aspirations like school, marriage, or purchasing a new vehicle or home, investing in ULIPs might be helpful. The money you invest will generate compounded market-linked returns, building a corpus for your long-term objectives.

2. Income Tax Benefits

The premiums you pay for a ULIP are also tax-deductible. Premiums paid for a ULIP are tax-deductible up to INR 1.5 lakhs under Section 80C of the Income Tax Act, providing the premium is up to 10% of the value guaranteed.

Furthermore, under Section 10(10D), the maturity returns from the insurance are free from income tax if the premium amount was up to 10% of the sum insured. The tax advantages of ULIPs are discussed in detail below.

3. Flexibility to Switch

This feature is unique to ULIPs and accommodates varying risk appetites in changing markets. These plans provide a facility for switching between the selected funds based on market conditions.

Changing portfolios is usually charged; however, with ULIPs, a few numbers transfers are free. As a result, you may change your assets for optimum profits and protection against market volatility without incurring any tax consequences.

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4. Invest as per risk appetite

ULIPs allow you to invest in a mix of market-linked funds based on your risk tolerance. To meet the investment requirements of diverse policyholders, ULIPs provide equity funds, debt funds, liquid funds, and a combination of equity and debt funds.

5. Life cover

ULIPs provide life insurance as well as market-linked returns. This is a source of financial stability for a taxpayer’s family in difficult times. The death benefit guarantees that your family gets financial support in the event of your untimely death, and the amount assured is the minimum payment guaranteed on death regardless of market volatility.

6. Build a corpus

Because of the variety of assets available via the plans, these plans may be excellent wealth-creation vehicles. Furthermore, with a five-year lock-in period, these programs may help instill the habit of disciplined investment. They are often long-term contracts, and the cumulative long-term benefits give adequate security and protection while also assisting you in developing a corpus.

ULIP Tax Benefits

ULIPs are eligible for a variety of tax advantages. These are some examples of ULIP Tax Benefits:

1. ULIP Tax Benefits under Section 80C

You may claim tax deductions on ULIP premiums up to a maximum of INR 1.5 lakhs under Section 80C of the Income Tax Act. However, the total premium paid should be less than 10% of the amount guaranteed. For example, if you pay INR 15 lakhs and your premium is less than INR 1.5 lakhs, you may deduct the whole amount under Section 80C.

In contrast, if your premium is more than 10%, your tax deduction will be restricted to 10% of the total guaranteed. So, if the premium is INR 2 lakhs and the value promised is INR 15 lakhs, the deduction is limited to INR 1.5 lakhs.

2. ULIP Tax Benefits under Section 80CCC

You may claim up to INR 1.5 lakhs under Section 80CCC if you have invested in a ULIP retirement/pension plan. The INR 1.5 lakhs deduction comprises deductions under both Section 80C and Section 80CCC.

3. ULIP Tax Benefits under Section 80D

If you purchase a critical illness rider or a surgical rider via a ULIP plan and pay the premium for such rider, the premium paid is deductible under this Section. The maximum deduction is INR 25,000, which climbs to INR 50,000 if you are 60 or older.

4. ULIP Tax Benefits under Section 10(10D)

The amount paid on partial withdrawal or maturity of ULIP insurance is exempted under Section 10(10D) of the IT Act. To qualify for the deduction, the premium due cannot exceed 10% of the guaranteed amount. 

If the insurance was obtained before April 1, 2012, the premium should not exceed 20% of the total guaranteed to get the tax advantage. On the other hand, the death benefit is tax-free, regardless of the premium amount or the sum insured.

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5. Tax benefit under Section 10(10A)

If you choose a ULIP retirement/pension plan, you may withdraw tax-free up to 33 percent of the corpus on maturity and receive a tax advantage under Section 10(10A) of the IT Act.

Although the new pension plan rules allow you to take 60% of the corpus, tax advantages are only available up to 33% of the corpus, with the remainder being taxable.

You fully benefit from ULIP Tax Benefits, be sure to pay your premiums regularly. If you stop making ULIP payments before two years, you will not be entitled to Section 80C tax advantages.

Wrapping It Up

ULIPs combine an insurance plan with a mutual fund scheme and provide a twofold benefit in a single solution. The phrase ‘Unit Linked Insurance Plan’ indicates that it is a market-linked insurance policy that invests in money market instruments such as debt and equities.
ULIPs allow investors to enjoy many features and ULIP Tax Benefits in one plan, including life risk coverage, long-term capital growth, and tax savings. ULIPs are appropriate for goal-oriented planning such as wealth growth, child education, and retirement preparation. It contributes to the family’s financial stability while also reaching long-term financial objectives.