ULIPs provide dual benefits of insurance as well as investment. It provides life coverage while a portion of the amount is invested in the funds equity or debt or both. Thus, ULIPs help in creating wealth along with helping you to secure your life.
Investors choose to invest in ULIPs to meet their life goals, such as retirement funds, child’s education, or any other goals. Investing in ULIPs also has tax advantage where one can save taxes under Section 80C. Let’s check out how ULIPs can be a good tax saving investment option.
Why Should You Choose To Invest In ULIPs?
Tax Benefits: With ULIPs one can enjoy dual tax benefits, on the premiums, and on the maturity amount received. Investors can enjoy tax benefits under Section 80 C on the premiums paid for the ULIPs while the returns on the ULIPs are tax-free under Section 10(10D). Although in this year’s budget it was announced that returns above 2.5 lakhs on premium would not be tax-free anymore.
Other than the tax benefits there are other benefits of investing in ULIPs such as:
Coverage for Life: With ULIPs, the tax payer’s family is financially secured even after the taxpayer’s untimely demise. The dual benefit of the ULIPs not only secure the finances of the company in the absence of the taxpayer also helps to meet the financial goals of the family.
Long Term Goals: Investing in ULIPs helps meet long-term goals as part of the amount is invested in the market-linked products such as equity. Those who have a higher risk appetite can choose to invest in equity funds and enjoy higher returns while those who have a low risk appetite can choose to invest in debt funds.
Let’s Explore The Tax Benefits That One Can Earn In ULIPs
Tax benefits on Premiums: As mentioned above, the ULIP plans allows tax deductions up to 1.5 lakhs under Section 80C, but the premium amount should be less than 10% of the assured sum to avail tax exemption.
Tax Withdrawal on Death: The family is entitled to receive the sum assured and the returns on the amount invested in the market. The entire pay out is exempted from any income tax rules. ULIPs even allow partial withdrawal which is tax- free. If the investor withdraws money after 5 years and the withdrawal amount is less than 20% of the fund value.
Tax Exemptions on Top-ups: Investors have the flexibility to avail top-ups by increasing their investment. These investments on top-ups are also eligible for Tax deductions under Section 80 C and Section 10D.
Long term Tax benefits: ULIPs have a lock-in period of 5 years which allows to enjoy tax benefits to upto 5 years and beyond if the investor continues with the policy.
Thus ULIPs are way better than any other investment scheme when compared to life insurance or Mutual funds. While Life insurance only provides life coverage and Mutual fund helps in capital appreciation, ULIPs help with life coverage and capital growth. Investing in ULIPs thus helps in insuring the family’s future and also grow wealth overtime.