Tips To Save Tax With ULIPs
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Whether we talk about buying electronic accessories or an insurance policy, we often look for the solution that is most beneficial to us. In terms of non-guaranteed insurance, unit-linked insurance plans (ULIPs) are an emerging insurance plan that offers dual benefits to customers. In simple terms, a ULIP is a market-linked insurance plan in which a portion of the premium is invested in funds and the remaining part is allocated to provide life insurance. ULIPs are much more beneficial than providing dual benefits to accomplish long-term goals. You can save tax at different stages of the policy. Read on to know more about ULIPs, including their meaning, features, and tips to save tax with ULIPs.
Meaning Of ULIPs
The Unit Linked Insurance Plan (ULIP) provides policyholders with the dual benefits of investment and life insurance coverage. A portion of the premium is invested in the funds of your choice, and the other remaining premium is allocated to provide life insurance coverage. The most promising feature of a ULIP is the tax savings benefits that can be availed of throughout the policy period and on maturity. The combination of returns, tax benefits, and insurance will let you create wealth and, at the same time, secure the future of your loved ones by investing in a ULIP.
Key Features Of ULIPs
Listed below are the benefits of investing in Unit Linked Insurance Plans.
- A ULIP plan's primary goal is to maximise wealth on your investment through market-linked methods and rewards. Additionally, throughout the duration of the policy, these plans offer broad life coverage benefits to you and your loved ones.
- During the policy tenure, ULIPs offer the ability to swap between equity and debt funds. A limited number of switches is permitted without incurring any additional fees within a fiscal year.
- The lock-in period for all ULIP plans is five years. Therefore, after the lock-in period is over, a policyholder can make partial withdrawals from the accruing fund. There are no additional fees to be paid.
- You are free to switch your future premium payments among the different fund options while investing in ULIPs. You must state the type of fund to which you are transferring your premiums, along with the policy number. Additionally, you can define the percentage of the premium that is allotted to each kind of fund.
How to Save Taxes With ULIPs
ULIPs provide policyholders with a variety of tax benefits in addition to long-term wealth and life insurance. Listed below are some tips on how to save tax with ULIPs.
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Tax Saving on Premium:
You are eligible to get tax advantages against the premium you pay to buy a ULIP. Under Section 80C of the Income Tax Act of 1961, it is considered a deduction from your taxable income. In accordance with this clause, the maximum deduction is Rs. 1.5 lakhs, but only if the premium does not go over 10% of the amount assured.
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Tax Exemption on Death:
The family of the insurance holder receives the sum insured plus any profits made by the ULIP plan in the event of the policyholder's death. The payment is exempt according to income tax regulations.
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Maturity Tax Benefits:
The maturity benefits under ULIPs are a great source of tax savings. For instance, if you pay all your accrued premiums for the policy bought before February 1, 2021, then you will not have to pay any tax during the maturity of the policy. This is because ULIP offers tax exemptions on maturity under Section 10 (10D) of the Income Tax Act of 1961. However, the premium cannot exceed 10% of the assured value.
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Tax Benefits on Partial Withdrawal:
ULIPs provide the feature of tax-free partial withdrawals. If you withdraw funds out of a ULIP plan after the lock-in period of five years, you are exempt from paying taxes on those withdrawals. However, the condition is that the withdrawal amount should not exceed 20% of the fund amount.
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Top-up Tax Benefits:
After the initial 5-year lock-in period, you can add more investments or cash to a ULIP. Therefore, under Section 80C and 10(10)D of the Income Tax Act of 1961, a policyholder will be eligible for tax exemption for these top-ups. However, the premium cannot be more than 10% of the amount insured.
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Long-term Tax Benefits:
If you invest for the long term, you can enjoy the ULIP tax benefits. The lock-in period lasts for around five years, and you benefit from the tax savings on your premiums for all these years. Therefore, you can create a corpus of wealth through long-term investment in ULIPs.
Conclusion
ULIPs are a great investment source and a form of life insurance that allows you to take advantage of various tax exemptions. You can invest in ULIPs for the long term to accomplish your future goals and safeguard your loved ones financially.
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