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In ULIPs, How Is Premium Utilized

Updated On Mar 07, 2022

A universal life insurance policy (ULIP) is a modern life insurance policy that provides insurance as well as investment opportunities. It's a safety net that ensures your family's financial security when you're gone while also offering market-linked returns to help them plan for the future while you're still alive. Furthermore, as required by tax regulations, ULIPs provide tax benefits both at the time of purchase and at the time of maturity. The income-inflation gap is widening, and prudent investments are the only way to close it. ULIPs are one of the most popular investment alternatives right now. Consider a goal-based ULIP if you have financial goals in mind, such as your children's marriages or higher education, or your retirement. A five-year lock-in period applies to ULIPs, and market-linked returns may help you grow your money over time.

How Does Premium Work in ULIPs?

Here's all you need to know about your ULIP premium:

1. ULIP Has Two Benefits

A ULIP might be used to pay for your retirement, your children's higher education and marriage, or any other future financial need. The life insurance component of the ULIP gives a death benefit. The death benefit will be paid to the nominee if the policyholder dies within the policy term. Furthermore, the client may be able to contribute to the maturity value if he or she survives to the conclusion of the ULIP's term.

2. The Instrument with Long-Term and Effective Results

ULIPs are a type of long-term insurance plan that combines market-linked earnings with life insurance into a single policy. Equity can assist give high-growth potential returns over the long term, depending on market circumstances. Because of the loan component, your corpus is more insulated from market volatility. A ULIP can be purchased according to your goals and risk tolerance. ULIPs allow you to make a partial withdrawal after a certain length of time. There may also be a top-up option available, allowing you to raise your plan's investment amount.

3. The Advantages of Taxation

ULIPs are also tax-deferred. Under Section 80C of the Income Tax Act of 1961, ULIP investments can be deducted from taxable income if certain requirements are met. You can deduct up to Rs 1.50 lakh each year using this clause. The maturity gains from a ULIP are likewise tax-free under Section 10(10D) of the Income Tax Act, subject to certain criteria. Section 10(10D) of the Income Tax Act of 1961 exempts the death benefit paid to a nominee in the event of a ULIP investor's death within the plan's term.

4. Charges for Withdrawing Partially

A partial withdrawal fee will be imposed if you remove part of your insurance during the policy's term. These fees are levied in whole or in part by various funds. It's important to understand the ULIP's terms and conditions, as well as the various costs connected with investing. These costs are significant since they have an impact on your insurance investment's overall return. Consult a professional if you're unclear how much premium you'll need to establish a large enough corpus to achieve your financial goals.

Take Away

ULIPs can assist you in achieving your life objectives and living a more meaningful life. ULIPs offer extra tax benefits in addition to life insurance and market-linked asset development. Because ULIPs provide so many advantages, you should consider adding them to your investment portfolio to strike a balance between your insurance and investing needs.

Also Read: Top Reasons To Keep Your ULIPs Invested

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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