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ULIP: The Smartest Tax-Saving Tool

By Finserv MARKETS - Feb 5,2019
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ULIP: The smartest Tax Saving tool

Unit Linked Insurance Plan is a good investment avenue life insurance product. It is a market-linked product that has quickly gained popularity among investors. Many people are keen on investing in this product for the dual benefit it offers i.e. the benefits of a life insurance cover as well as the opportunity to invest in various market instruments. However, before you decide to park your money in ULIPs, you need to understand what it is, and how it can benefit you.

What is ULIP?

A ULIP is an investment cum insurance product that is slightly different from many other investment products. Unlike other products that help you achieve a singular goal of wealth creation, unit linked insurance plans offer you the opportunity to achieve the dual goal of security as well as wealth creation. By investing in this product, you can a 10x life insurance cover as well as the opportunity to invest in various market instruments such as stocks, bonds or funds (equity, debt or a hybrid).

Benefits of ULIPs

  • Tax Benefits
  • Impact Of LTCG
  • Flexibility
  • Return On Investment

Why invest in ULIP?

Tax Benefits: Now that you know what Unit linked insurance plans are, you need to understand the ULIP tax benefits before investing. The premium amount paid by you is eligible for a deduction under Section 80C of the Income Tax Act, 1961. There is a limit of INR 1.5 lakhs on the deductible amount. However, the premium paid should be below 10% of the sum assured in the policy.

You can also enjoy tax-free withdrawals in a ULIP. You can withdraw the money when the policy matures, or in case of the death of the policyholder or partially withdraw the money when you wish to, after the lock-in period/maturity. The death benefit will remain tax-free. In case of maturity of the policy or partial withdrawal post-maturity, the proceeds will be exempt under Section 10 (10D) of the Income Tax Act, 1961. Please note, a ULIP plans come with a lock-in period of 5 years.

Impact of LTCG: Moreover, unit linked insurance plans are also exempt from LTCG or Long-Term Capital Gains tax. This is also one of the reason why it has gained popularity over some of the existing investment products like Mutual Funds and ELSS (Equity Linked Savings Scheme) which are taxed at 10% on profits exceeding Rs. 1 Lakh.

Flexibility: Further, ULIP plans allow you to choose your preferred asset class. This means you get to choose between stocks, bonds or other money market instruments. You can also opt for a combination of equity and debt depending on your risk appetite and life stage goals. You can easily switch between funds if you think that one fund is not performing as per your expectation.

Thus, ULIPs are not only considered as an ideal investment option as compared to other investment products available in the market, but it is also a smart tax-saving tool due to deductions under Section 80C and 10D. With the ability to generate wealth over a period, ULIPs are considered as an ideal investment option for individuals across various age groups looking to invest for a long-term with a definite goal or objective.

To know more on ULIP investments in depth, you can check out these blogs:

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522