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Know Everything About Tax Benefits Of ULIPs

Published On Dec 08, 2021 11:00 AM By InsuranceDekho

The Unit Linked Insurance Plan (ULIP) is a type of investment and insurance product in which the life assured receives a life along with an investment component. One of the standout features of ULIPs is the tax-saving option, which may be selected at any moment during the policy's term and at maturity. Because of their flexibility, customers prefer ULIPs to alternative investment options. It is seen as a reliable means of achieving long-term wealth growth objectives. This is due to the fact that it combines returns, tax benefits, and insurance.

Know Everything About Tax Benefits Of ULIPs

ULIPs are attractive tax-saving tools due to higher returns and shorter lock-in periods. Let's take a look at seven things you should know about ULIP tax advantages:

1. Multi-Benefits In A Single Plan

Traditional insurance plans, PPFs, and mutual funds are all inferior to unit-linked insurance plans. Life insurance protects you from death, but it offers nothing to help you build money. Mutual funds, on the other hand, offer good returns but no insurance coverage. ULIPs, on the other hand, serve as a bridge and give you the added benefit of tax savings.

Must Read:  How To Buy ULIPs Online in 2021?

2. Top-Up Deductions

Top-ups are available through ULIP and can be used to boost one's investment. Income tax deductions u/s 80C and 10D are also available for these Top-ups.

3. Long Time Tax Benefits 

For a long-term investment, you can benefit from ULIP tax benefits. The lock-in period is around five years, and you benefit for at least five years by avoiding paying tax on your premiums. If you keep your ULIP coverage, you can get even greater tax benefits.

4. Tax Benefit – Partial Withdrawals

In the instance of ULIPs, partial distributions are tax-free. You are not obligated to pay income on disbursements from a ULIP after the 5-year lock-in term. The criterion is that the withdrawal sum does not surpass 20% of the fund's total value or quantity.

5. Tax-Free Withdrawals In Case Of Death 

The policyholder's family is entitled to a sum assured amount as well as the profits earned by ULIPs in the event of the policyholder's untimely death. Income Tax regulations exempt the payment.

6. ULIP Tax Benefits For Maturity

According to current rules, such as section 10 (10D) of the Income Tax Act, 1961, ULIPs are market-linked investment plans that provide tax-free maturity amounts. If the plans are purchased after April 1, 2012, the premium must be less than 10% of the sum assured to qualify for the tax benefits at maturity. If the annual premium is less than 20% of the sum assured, the maturity amount for persons who bought policies after April 1, 2012, will be tax-free. The death benefit is also tax-free if you have a life insurance policy.

7. Tax Saving Benefit On ULIPs Paid Premium

Under sections, 10D and 80C of the Tax Act, 1961, a member can deduct the cost of up to Rs.1,50,000 on the payment gateway amount of money paid towards ULIPs. Continue the ULIP coverage for another 5 years and you'll be tax-free.


ULIPs help to set wealth-building objectives for yourself and your household while also ensuring their security and achieving their objectives. The programs are versatile, with a variety of fund options to choose from and the ability to swap funds based on your investment goals or market conditions. At the time of maturity or partial withdrawals, get tax savings and withdrawals that are tax-free.

Also Read: What Are The Various ULIP Charges You Should Be Aware Of?

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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