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How To Save Tax With ULIP?

Updated On Sep 09, 2021

A Unit Linked Insurance Plan, or ULIP, is an investment vehicle in which the policyholder also receives life insurance as part of the investment policy. Tax advantages are ULIP's distinguishing feature. These tax advantages are available throughout the term as well as at maturity. The flexibility of ULIPs is one of the reasons why they are becoming more popular than other investment options. 

It is regarded as a long-term trustworthy choice for wealth growth. This is due to the fact that it is a product that combines returns, tax advantages, and insurance. While a traditional life insurance policy does not provide much in the way of wealth building, a conservative tax-saving option such as PPF does not guarantee good returns.

Save Tax With Unit-Linked Insurance Plans (ULIPs)

Following are the methods in which you can save tax in ULIPs:

1. ULIPs Have Tax Advantages

Section 80C allows you to deduct the amount you invest in a ULIP policy. The maximum amount for which a deduction is available is Rs.1,50,000. In addition, Section 10 exempts the amount received by the policyholder at maturity from tax (10D).

2. ULIPs' Lock-in Period

The Insurance Regulatory and Development Authority of India (IRDAI) made the necessary amendments to ULIP plans' lock-in term. The IRDAI extended the ULIP lock-in term from three to five years. However, in order to reap the benefits of the policy, one must invest for the long term, which may be anywhere from 10 to 15 years.

3. Withdrawals Are Tax-free

The tax advantages of ULIPs have been well-defined for some time. The benefits of investing in this instrument, however, do not end there. Investors who invest in unit-linked products can save money on taxes on their withdrawals. There are three scenarios in which a withdrawal could occur:

  • When the policy has matured,
  • If the policyholder dies, the policy proceeds to the beneficiaries,
  • After consulting with his or her insurance firm, the policyholder may request a partial withdrawal.

While the income from mutual funds is completely taxed, the investor can protect his or her money using ULIPs.

Because the advantages from unit-linked investments are usually higher, the amount earned is frequently higher than the sum assured.

Also Read: Are Money Back Plans Good?

4. Financial Long-Term Objectives

When learning about the lock-in period, it's easy to mistake ULIP for short-term insurance. However, this is not the case; rather, it implies that an investor's financial objectives are long-term. Because the money is compounded, the net returns from this scheme are usually larger. As a result, even if the investor decides to depart after the lock-in period, the rewards are greater.

5. Life Cover

ULIPs give life insurance that can protect your loved ones in times of need. With a ULIP, you can rest comfortably that your family will be protected even if you are not present. They won't have to give up their life goals because ULIPs not only protect the insured's life but also grow the money over time. ULIPs are versatile investment vehicles since they allow the policyholder to choose which funds to participate in. During the policy's term, you can switch between funds (as per policy terms and conditions). Partially withdrawing money is also possible with some ULIPs.


Because it concerns your hard-earned money, any investment in life deserves careful consideration. Most people make financial plans to better manage their day-to-day spending and prepare for future requirements. When buying a ULIP, it's a good idea to figure out how much life insurance you'll need to meet your goals.

While ULIPs are beneficial, they can have a negative influence on your income. The Government of India has made some ULIP tax incentives available to policyholders. A ULIP tax benefit is available when you invest your money in an approved plan.

This is due to the fact that a life insurance policy can be claimed as a deduction for "any sum paid to retain in force."

You May Also Like To Read: Difference between ULIPs and Life Insurance

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.    

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