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Tax Benefits Associated With ULIPs

Unit Linked Insurance Plans (ULIPs) are one of the most effective tax-advantaged investing strategies available today. It provides wealth-building and life insurance protection in one package. It's rare to come across an investing program that offers all of the advantages of a ULIP. With the same 5-year lock-in term, it outperforms tax-advantaged fixed deposits, NSCs, and post office deposits. The best thing is that not only are your ULIP premium payments tax-deductible, but so is the maturity benefit.

Tax Benefits Associated With ULIPs

 Below are a few points to note about tax benefits associated with ULIPs:

  • Premiums Paid For ULIPs Are Subject To A Tax Benefit

To begin with, the premiums you pay for your ULIPs qualify you for tax benefits of up to Rs.1.5 lakh under Sections 80C and 10D of the Income Tax Act. Make sure you keep your ULIP insurance active for at least 5 years to benefit from the tax benefits and other ULIP benefits.

  • Maturity ULIP Tax Advantages

The only market-linked investment that is tax-free even after maturity is a unit-linked insurance plan. As a result, you save tax on both the premium you pay and the maturity amount you get. To qualify for a tax exemption at maturity, the premium must be less than 10% of the amount assured.

  • Death Benefits: Tax-Free Withdrawals

The policyholder's family receives a sum assured amount plus the ULIP's returns in the event that the policyholder dies. Income tax regulations make this payment tax-free.

  • Partially Tax-Free Withdrawals

Even partial withdrawals are tax-free in a Unit Linked Insurance Plan. You don't have to pay taxes on withdrawals from a ULIP after the five-year lock-in period if the amount is less than 20% of the fund's value.

  • Top-up Reductions

ULIPs allow investors the option of buying periodic top-ups to expand their investment. Income tax deductions under Sections 80C and 10D are also available for these top-ups. Long-term capital gain tax protection: ULIPs are not liable to LTCG tax, whereas earnings derived from shares, equity mutual funds, and ELSS over Rs.1 lakh are.

  • Tax Savings Over Time

With a long-term investing view, you can gain tax benefits from ULIPs. Because ULIPs have a 5-year lock-in term, you benefit from saving tax on your insurance premiums for at least 5 years. If you keep your policy, you'll be able to take advantage of additional ULIP tax benefits.

  • ULIPs Are A Combination Of Investment, Life Insurance, And Tax Benefits

Traditional insurance, mutual funds, and PPFs all lose out to unit-linked insurance. Whole life insurance provides protection, it does not assist in the accumulation of wealth. Mutual funds, on the other hand, provide strong returns and allow you to develop your wealth while also excluding insurance coverage. The advantages of a ULIP are that it bridges this gap while also allowing you to save more money on taxes.

  • Other Than Section 80C, ULIP Tax Benefits

Section 10(10D) of the Income Tax Act exempts the maturity amount of a ULIP from taxation.

The death benefit received by the assured in the event of his or her death is also tax-free.

Even if the foregoing discount applies, the premium must be less than or equal to 10% of the sum promised for plans purchased after April 1, 2012, and less than or equal to 20% of the sum assured for plans purchased before April 1, 2012.

ULIPs are the only market-linked investment products free from the LTCG (Long Term Capital Gains) Tax, which was established in 2018.


A ULIP is a type of insurance that combines investing and insurance into one package. A Unit Linked Insurance Plan, or ULIP, combines the benefits of wealth building with the protection of your loved ones' future.

Also read: 

Is ULIP a better investment than mutual funds?

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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