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6 Reasons to Buy ULIP Policy As a Better Investment in Terms of Tax Savings

Terms of Tax Savings


Investors are always looking for the best tax-saving instruments, and a ULIP plan is their ultimate saviour. ULIPs aid with wealth creation and also offer life insurance cover. It is almost impossible to find another investment tool with as many benefits as a ULIP.

Several people argue that fixed deposits, post office deposits, and NSC also come with various tax benefits. But ULIP has the edge over them due to higher returns. Moreover, ULIPs also comes with a similar lock-in period of only 5 years.

Scroll down till the end to understand how ULIPs are the best tool for saving on tax.

1. Tax-Free Premiums

According to Sections 10(10D) and 80C of the Income Tax Act, you can enjoy tax benefits on ULIP policy premiums. But the tax deductions are available for up to ₹1.5 lakh in case of premiums.

2.  Tax-Free Death Benefits

When the policyholder dies, ULIP offers death benefits to the family members. The death benefits include the sum assured amount and returns generated by the plan. As per the Income Tax rules, the assured sum is exempted from tax deductions.

3.  Tax-Free Top-Ups

Investors have the flexibility to expand their investments with periodic top-ups on ULIPs. The top-ups are treated in the same way as your basic premium amount. However, the combined deduction of the primary premium and top-up from your income should be less than ₹1.5 lakh or 10% of your policy amount (whichever is less).

4.  Tax Exemption on Partial Withdrawals

You never know when additional expenses will come up in life. For instance, you might need the funds for your child’s academic endeavours, marriage, property purchase, and retirement. ULIPs are perfect because it allows you to make partial withdrawals after continuing the policy for five years. Under the Income Tax Act, section 10D specifies that partial withdrawals from ULIPs are also tax-free. However, the partial withdrawal amount can’t be more than 20% of the fund value.

5.  Tax Benefits for the Long-Term

If you want a long-term investment option with tax benefits, there are no better alternatives to ULIP policies. Remember that the lock-in period of ULIPs is 5 years. You can save tax on your insurance premiums for 5 years consecutively. If you continue with the policy for longer, you will gain higher tax benefits over the years.

6. Tax Benefits on Maturity

Upon the maturity of ULIPs, you get the entire value of the unit-linked investments, or the sum assured. As per section 10D of the Income Tax Act, 1961, the matured amount is free of tax deductions. However, the premium should be restricted to 10% of the assured sum.

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Closing Thoughts

ULIPs are the perfect option between simple life insurance plans and high-risk investments like mutual funds. They offer high returns and life coverage. ULIP policies are flexible and let you control your funds and investments completely.

You can invest in the market according to your ability to take risks and enjoy insurance security simultaneously. Moreover, you will get higher returns for investing in a ULIP plan for a long time. Since the tax benefits and other advantages of ULIPs are unmissable, invest in one today.

Click here to know more about Kotak Life ULIP Plan:

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