Tax Benefits of Investing in ULIPS

We work hard day in and out to strengthen our financial situation. Investing in good policy plans is beneficial as it ensures long term financial security. By making investments, we also make money work hard for us. A penny saved is a penny earned!

UnitLinked Insurance Plans (ULIPs) are investment vehicles having a lock-in period of 5 years. They serve as an optimum wealth creation solution. ULIPs offer investors insurance and an investment opportunity under one umbrella. The premium amount of ULIP is split into two parts as per the policyholder’s preference.

One part of the premium is invested as a life insurance cover to the policyholder. The other part of the premium is invested in securities like stocks, mutual funds or bonds.

ULIPs offer you a twofold advantage. They help you save taxes while paying the premium and even after the policy has matured.

Why should one invest in ULIPs?

As mentioned above, ULIP is a unique blend of a life insurance policy and an investment option for accomplishing your long-term financial goals. As an investor, you wish to save money for your children’s education, their marriage or even for your retirement. ULIPs are a perfect amalgamation of these objectives.

Read on to find out how ULIPs are a propitious investment:

1. Tax benefit on premium amount 

The premium amount paid in ULIP is allowed as a deduction under Section80C. The least among the two will be considered as a deduction:

• up to 10% of sum assured;
• premium amount         

The premium amount paid in ULIP Retirement plan can be claimed as a deduction under Section 80CCC.

Note:  As per the Income Tax Act, the combined maximum deduction under Section 80C, Section 80CCC and 80CCD(1) is up to Rs 1,50,000. Even though you invest a higher amount, a deduction can be claimed only up to Rs 1,50,000.

Example 1: If the sum assured is Rs 15,00,000 and the premium amount paid is less than 10%, let’s consider Rs 1,00,000, a policyholder can claim the entire premium as a deduction u/s 80C.

Example 2: If the sum assured is Rs 15,00,000 and the premium amount paid is more than 10%, let’s consider Rs 2,50,000 a policyholder can claim a maximum deduction up to 10%, i.e. Rs 1,50,000 only.

2. Exemption on withdrawal 

Withdrawal of policy amount can take place in the following cases:

• Death of policyholder
• Partial withdrawal of policy amount 
• Maturity of the policy 

Policy amount withdrawn on the event of the death of the policyholder is completely tax-free.

As per Section 10(10D) for life insurance policy, if the premium amount is below 10% of the sum assured, the amount received on partial withdrawal/maturity is exempt. 

If you have taken a policy before 1^st April 2012, and the premium amount is below 20% of sum assured, the amount received on partial withdrawal/maturity is exempt.

Note: If the amount payable by you exceeds 10%/ 20% of sum assured, the amount received at the time of maturity will be taxed under “Income from other Sources”.

3. Benefit of Retirement ULIP/Pension ULIP:

1/3^rd of the entire amount can be withdrawn by the policyholder. This is termed as commuted pension, and the amount will be tax-free as per Section 10(10A). The remaining amount can be received in annuity installments.

4. Other Benefits of Investing in ULIPs:

• ULIPs offer policyholders a variety of high, medium and low-risk investment options under one single policy. Investors have the freedom to select any option as per their interest.
• ULIPs offer investors a partial withdrawal after the first 5 years from their Unit Linked Account.
• Being a long-term systematic investment option, ULIPs enable investors to invest money in small chunks regularly.

Thus, by investing in ULIPs, you can gain tax benefits and achieve your long-term financial goals.But you might fail to claim the tax benefits in the absence of proper knowledge and procedures. So, you should take help of tax experts for this job.We have a team of in-house tax experts who can accurately file your tax returns online while giving you maximum tax benefits.