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What You Should Know About ULIP Tax Benefits?

Published On Dec 04, 2021 10:00 AM By InsuranceDekho

Unit-linked insurance plans (ULIPs) might have been a smart alternative for shareholders because they offer a variety of tax advantages. It is a type of investment that combines life insurance with market-linked wealth building.

Insurance is viewed as an investment by a large majority of people. There is, however, an important distinction to be made. When you are assured, you're protecting yourself from risk, and when you invest, you're putting money down for the future. Even if it's subtle, there's a distinction.

Unit-linked investment plans, on the other hand, are unaffected by this nuance. They offer both life insurance and investment opportunities.

ULIPs allocate a portion of your premium to your loved ones' financial security. The rest is put into the funds of your choice.

What You Should Know About ULIP Tax Benefits? 

To learn more about ULIPs and how they can help you save money on taxes, keep reading:

1. Tax Benefits On Premiums

Section 80C (life insurance premiums are tax-deductible) and Section 80C (life insurance premiums are tax-deductible) are two essential clauses of the Indian Income Tax Act, 1961, that apply to ULIPs (amount paid towards pension plans is tax-exempt).

Must Read: What Are The Different ULIP Charges That You Must Know About?

Tax incentives of up to Rs 1.5 lakh are available under Sections 80C and 80CCC in a financial year. However, the annual premium should be less than 10% of the sum assured. As a result, if the sum assured is Rs 15 lakh and the annual premium is less than Rs 1.5 lakh, the entire money can be used to obtain ULIP’s tax benefits.

2. Free Partial Withdrawals

Account-holders can take a fixed sum from their ULIPs assets after just a five-year lock-in term, and these withdrawals are tax-free. Nevertheless, no more than 20% of the fund's worth can be withdrawn. Assume somebody has a five-year ULIP with a capital value of Rs 2 lakh, a Rs 30,000 annual payment, and a Rs 3 lakh amount assured. Only Rs 40,000 can be withdrawn (20 percent of Rs 2 lakh). In addition, life assurers may impose other restrictions, such as a minimum withdrawal amount or a maximum number of partial withdrawals each year. As a result, policyholders should read ULIP's policy document to learn more about these terms and conditions, while also making sure that their premiums are paid on time.

3. Tax Benefits On Maturity

According to Section 10 (10D) of the Income Tax Act of 1961, ULIPs provide a tax-free maturity sum. The only stipulation is that for plans acquired after April 1, 2012, the annual premium must be less than 10% of the sum assured. The maturity amount is tax-free for insurance purchased before April 1, 2012, if the annual premium is less than 20% of the sum guaranteed. The death benefit received in the event of the life assured's death is likewise tax-free.

4. Savings Through Top-ups

The return on your new ULIP investment would no longer be tax-deductible if the annual premium is more than Rs 2.5 lakh. If the annual premium is less than Rs 2.5 Lakh, however, tax benefits can be continued. As a result, policyholders may be able to convert money from debt to equity or vice versa, depending on the risk profile's suitability.

5. Other Benefits Of ULIPs

ULIPs are the only insurance-and-investment products available. ULIPs come in a variety of forms, ranging from stock to debt. Equity ULIPs let policyholders invest in high-risk equities and company stocks. Debt funds, which invest in government securities, fixed-income instruments, corporate bonds, and other similar options, are a good option for those seeking a medium-risk investment. ULIPs can also assist in the accumulation of a retirement fund. When you don't have a steady income source, it's critical to saving aside money for the future. ULIPs are also a fantastic investment decision for your current financial circumstances because of their tax benefits.


ULIPs enable you to plan ahead for your taxes. The reason for this is that ULIPs have a five-year lock-in period. As a result, the proceeds will not be taxed if you make withdrawals after maturity. You will save a lot of money by doing so.

Also Read: How To Buy ULIPs Online in 2021?

 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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