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How to Save Taxes With ULIPs?

A unit-linked insurance plan is special in that it provides the policyholder with two benefits. A ULIP's premiums are split between insurance and investing. The policyholder has the option of choosing what form of investment he wants to make with his money.

A portion of the premium is used to ensure that the covered person has life insurance. The balance of the premium is invested in various debt and equity funds based on the preferences of the consumer. ULIP tax benefits are provided to policyholders, just like any other life insurance policy, to help them save money.

How to Save Taxes With ULIPs?

Below are a few things you must understand about saving tax with ULIP:

1. ULIP Tax Benefits

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

While ULIPs are beneficial, they can reduce your income. The government of India offers policyholders some ULIP tax incentives. You can claim a ULIP tax deduction if you put your money into a qualifying plan.

This is because a life insurance policy can be claimed as a deduction for "any sum paid to keep in force." Extra components paid to the assurer, such as service tax, may also be included in the ULIP tax advantage.

2. Tax Benefit On Premium

The advantage of investing in a ULIP is that you can deduct the whole premium you pay from your taxable salary, up to a ceiling of Rs 1.5 lakh. If a policy does not meet the Section 10(10D) requirements, the amount of the deduction under Section 80C is limited to 10% of the capital sum assured for policies issued on or after April 1, 2012, and 20% of the capital sum assured for policies issued before April 1, 2012.

3. Tax Benefits On Premium

Benefits from ULIPs are tax-free, according to section 10(10D) of the Income Tax Act of 1961. This only applies to plans purchased after April 1, 2012, when the yearly premium is less than 10% of the capital total guaranteed (for the policies purchased before the said date, it is 20 percent ).

When you bought the ULIP, you saved some money on taxes. What happens, though, when you sell your investment after it has reached maturity? The good news is that, under Section 10 (10D) of the Income Tax Act 1961, ULIPs provide a tax-free maturity payment, subject to certain criteria, and as long as the yearly premium does not exceed Rs 2.5 lakh for plans issued after February 1, 2021.

4. Tax-Free Partial Withdrawals

You won't have to pay taxes if you withdraw money from your ULIP after the five-year lock-in period if the amount removed is less than or equal to 20% of the sum assured.

In the event of death, a tax-free payout is made.

In the unfortunate case of the policyholder's untimely death, the nominees are entitled to the entire sum promised or the complete value of the fund in which the policyholder had invested, whichever is greater, as per the policy's terms and conditions. While the family mourns the loss of a loved one, they do not need to be concerned about their plans because the lump sum payment will assist them in achieving them. Furthermore, the entire pay-out in the case of the policyholder's death is tax-free.

5. Choosing The Best ULIP Is Essential

So, if you're searching for a way to save money on taxes this fiscal year, ULIPs might be the way to go. A Unit-linked Non-Participating Life Insurance Plan may be an alternative that not only combines life insurance and investing with tax benefits but also recovers the life cover charges at maturity. If you go with this strategy, you can pick from four distinct investing methods and eight different funds to find the approach that best fits your financial goals and risk tolerance.


ULIP provides wealth-building and life insurance protection in one package. It's rare to come across an investing package that offers all of the advantages of a ULIP plan. With the same 5-year lock-in term, it provides superior returns than tax-saving fixed deposits, NSCs, and post office deposits. The greatest feature is that your ULIP premium installments but also the maturity advantage are tax-deductible.

You may also like to read - Unit Linked Insurance Plans - Key Features, Benefits, Exlusions etc.

How Secure Are ULIPs?

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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