7 Things You Need To Know About the Tax Benefits of ULIPs
Updated On Aug 28, 2022
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The key benefits of ULIP are its versatility and financial stability. Furthermore, investing in ULIPs can provide policyholders with significant returns to help them achieve their financial goals. A chunk of the funds is invested in the insured's preferred ULIPs, such as stocks, bonds, and so on., with the remaining 50% going toward the insured's family's health insurance.
ULIPs might be useful for budgeting as well. In addition to offering coverage, they assist you in managing your finances so that you may achieve your financial objectives and amass wealth. You might invest in a combination of debt and equity funds which offers excellent returns with the aid of these programmes. To know more about ULIP tax benefits, read on.
What Do You Understand By ULIP?
ULIP, is a special kind of plan that offers you both an investing component and an insurance coverage. Your premium payment is split between purchasing a life insurance policy and investing the remaining money of your choice. There are several fund options offered by various insurance firms.
One of the special benefits of ULIPs is the option to save on taxes both throughout the policy term and upon policy maturity. Given its flexibility, ULIP plans are preferred by customers above other accessible investment choices. It is regarded as a reliable choice for achieving long-term wealth growth objectives. This is such that it combines returns, tax benefits, and insurance.
What Are The Things That One Should Know About Tax Benefits Under ULIP?
Following are the things that one should know about tax benefits under ULIP -
Tax Savings - Sections 10D and 80C of the Income Tax Act, 1961 allow policyholders to claim a tax deduction on the policy premium payments made to ULIPs. To receive the tax reduction, keep your ULIP insurance active for an additional five years.
Maturity Benefits - According to current rules, such as section 10D of the Income Tax Act of 1961, ULIPs offer tax-free maturity sums. If the policies are purchased after April 1, 2012, tax benefits at maturity are only available if the premium becomes less than 10% of the entire amount covered. For anyone who purchased insurance after April 1, 2012, the maturity amount will be tax-free if the annual premium is less than 20% of the amount covered. In the event that the life guaranteed passes away, the death benefit is also tax-free.
Tax-Free Payouts - If the policyholder passes away tragically, along with the earnings made by ULIP plans, the family is also guaranteed a sum insured amount. According to income tax regulations, the payout is exempt.
Partial Withdrawals - With regard to ULIPs, partial withdrawals are tax-free. Investors really aren't obligated to pay taxes for withdrawals from ULIP plans made after the lock-in period of five years. The restriction is that the withdrawal cannot be for an amount greater than 20% of the total size or value of the fund.
Top-Up Deductions - ULIP gives customers the ability to buy top-ups to expand their investment. Income tax deductions are also eligible for income tax breaks within sections 80C and 10D.
Long-Time Tax Benefits - For a long-term investment, ULIP tax advantages are available. By avoiding paying taxes on your premiums throughout the lock-in period, which lasts about five years, you benefit for at least five consecutive years. If you stick with your policy, you'll be able to receive extra tax advantages for ULIPs.
One Plan - The benefits of ULIPs over mutual funds, PPFs, and other types of traditional insurance plans are numerous. Although it offers life insurance, it does not assist in wealth growth. Mutual funds, on the other hand, provide you fantastic returns but no insurance. ULIP plans, however, provide a bridge and an extra advantage of tax savings.
Endnotes
Due to the diversity of benefits they offer, ULIPs in a portfolio assist a person in balancing their insurance and financial requirements. They also allow you the chance to set goals for wealth building and to safeguard your family's future and aspirations.
