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Learn How To Save Tax With ULIPs

Updated On Jan 07, 2022

More than just life insurance is provided by a ULIP. It's a goal-oriented investment tool that can help you achieve your varied financial objectives. However, before investing in the plan, make sure you fully grasp it so you know where your money will be placed.

Your Unit Linked Insurance Plan, like conventional insurance plans, requires you to pay premiums. Only a portion of your premiums is used for life insurance, while the remainder is invested in a range of funds. Equity-oriented funds are suitable for aggressive investors, whilst debt-oriented funds are suitable for conservative investors. Balanced funds, which are a mix of equities and loans, are a good choice if you desire the rewards of growth as well as security. Alternately, depending on your needs at different times of life, you can switch between funds.

When you're younger, for example, you're more likely to have fewer responsibilities, so you can invest in equity funds, which provide larger returns but also bigger risks. Your obligations expand as you grow older and start a family. After that, you can invest in debt or balanced funds, which have lower returns but smaller risks.

Learn How To Save Tax With ULIPs

Below are a few things you must know about saving tax through ULIPs:

  • Maturity Benefits

Maturity benefits, which are normally equivalent to the current value of your money, are offered when the policy matures. However, some assurers offer additional maturity perks such as loyalty bonuses and other incentives.

  • Market-Linked Returns

If you've always wanted to participate in the stock market but were scared to do it on your own, ULIPs are a great option. A portion of your premiums is placed in the stock market, which includes shares, debts, bonds, securities, and other investments. Professional fund managers manage your investments, allowing you to benefit from market-linked returns.

  • Tax Benefits

In addition to the above advantages, ULIPs provide tax advantages under Section 80C for premiums and Section 10(10D) for returns.

  • Long-term Investment Benefits

ULIPs are an excellent option if you want to maximize your long-term investment profits. Short-term market volatility and swings have little impact on your money because you have been invested for a long period. 

  • Dual Benefits

ULIPs, as previously said, provide dual I-I benefits: insurance and investment. It's a fantastic way to build your wealth over time. It also includes life insurance, which helps to safeguard your family financially in the event of your untimely death.

The rest of your premium is put in your chosen investment product, with a pre-determined amount set aside for insurance investments (debt or equity).

  • Tax-Exemptions

One of the most appealing features of ULIPs is that they allow you to take advantage of tax benefits at three stages: investment, returns, and withdrawals.

Stage of investment - You can deduct the premiums you pay from your taxes.

Furthermore, unlike mutual funds, which are taxed, ULIPs allow you to withdraw your collected funds at any time after the mandatory lock-in period without incurring any taxes.

Returns stage – The maturity amount or sum assured that you receive at the policy's maturity date is also tax-free.

  • Option To Switch Fund Allocations

ULIPs allow you to change the percentage of your portfolio that is invested in stocks versus debt funds. You can vary the percentages of stock, debt, balanced, and hybrid funds in your portfolio depending on your risk appetite, which increases as you get older.

ULIPs are the only investment vehicles that allow investors to transfer their monies partially or entirely from one fund to another without incurring additional fees. If you are a regular market follower, you may make use of this feature to get the most out of your investments.

  • Higher Returns

In comparison to other insurance and investment products, ULIPs provide superior returns. You gain the benefits of diversification with ULIPs because they invest your money across many asset types.

ULIPs have various advantages over tax-advantaged funds. Despite the fact that tax-saving funds are more likely to provide better returns, the amount you receive at maturity is determined by the success of the stock market. If the market does not perform well over the fund's duration, this can result in a loss of capital.

Conclusion

ULIPs are investment plans that adjust your fund allocations according to your stage of life. When you're younger, for example, you're less likely to have numerous financial obligations or other duties. You have the financial wherewithal to take chances. As a result, these plans' initial allocations include a higher amount of equity than debt.

Also read - Understanding The Difference Between A ULIP and a SIP

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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