ULIP or Unit-Linked Investment Plan is one such investment that allows customers to save a sizeable portion of their income by cutting out unwanted taxes from the scheme of things. Although there are other tax saving investment plans to fall back upon, including the likes of endowment policies and debt instruments, ULIP is one option that can easily fit into a person’s financial lifestyle and offers life insurance tax benefits.
How Good an Investment is ULIP?
ULIP or Unit-Linked Insurance Plan is best known for its unmatched flexibility. Individuals investing in ULIP benefit from the equity-specific structure of this scheme whereas the protection cover on offer helps them saveconsiderable amount of taxes. Moreover, ULIP takes a host of factors into account like the lock-in period, the rate of return and even the maturity period for determining the tax rebates associated with an investment plan.
ULIP is, therefore, an insurance plan that falls under
Section 80C of the ‘Income Tax Act’, entailing to a permissible rebate of up to 1.5 lacs. In addition to that, ULIP allows the client to select the preferred class of assets, depending on the risk tolerance level. A person can, therefore, opt for an equity-specific portfolio or invest in money, debt, and equity by balancing out the assets.
In the next few sections we shall look at
life insurance tax benefits offered by ULIP and how it helps the policyholders save taxes and move towards a better financial future:
ULIP Supports Tax-Free Withdrawals
Those whoare invested in ULIPs can avail tax savings on non-equity specific withdrawals, upon policy holder’s death, policy maturity and even partial withdrawal precisely at policy holder’s discretion. However, for the first case,i.e.the death of the concerned policyholder, the withdrawals are untaxed whereas for the next two instances the levied taxes are on the lower side.
ULIP Facilitates Milestone-Specific Planning
The minimum lock-in period for ULIPs is 5 years,butpolicyholders can still make partial withdrawals, in case requirements show up. In case the partial payment doesn’t exceed 20 percent of the policy value, no taxes are levied on the withdrawals. This attribute facilitates
goal-specific planning as individuals can easily procure funds for home purchases, marriage and other important events without having to pay additional taxes on the withdrawals.
Topping up Investments in ULIP
Periodically topping up the ULIP is also an option which attracts minimum tax deductions. Excess cash reserves can, therefore,be planned for by investing in a Unit-Linked Insurance Plan. However, the additional premium, even if it falls under the tax exemption category, must not exceed 10 percent of the overall sum assured, synonymous to the policy.
Improved Flexibility offered by ULIP
ULIP, unlike any other investment plan, allows users to switch funds according to preferences. For someone who is a risk taker, ULIP offers equity-heavy options; thereby focusing more on growth and quicker returns. Apart from that, the conventional insurance plans also work just fine,and individuals can allocate funds and wait for long-term gains.