How Can I Save Taxes With ULIPs?
Table of Contents
Life insurance is offered under ULIPs. Unlike conventional life insurance methods like term insurance plans, which only assist in offering life insurance protection, or high-risk investment vehicles the same as mutual funds, that accomplish the same, ULIPs are market-linked plans which provide the opportunity for wealth creation along with insurance and superior tax savings.
ULIPs are a more trustworthy kind of life insurance. It is one of the best vehicles for long-term wealth building due to the benefits of ULIP taxes, safety & security, and rewards integrated in one insurance policy. It also gives you the option to invest, plus it throws in life insurance as a bonus. Find out more about tax savings under ULIPs, read on.
What Do We Understand By The Term ULIP?
A ULIP is exceptional since it provides the policyholder with two advantages. A ULIP's premium payments are split into portions for insurance and investments. The sort of investment the policyholder decides to make with it is up to him.
A certain amount of the premium is used to purchase life insurance for the covered person. The remaining half of the premium is invested, at the customer's discretion, in a variety of debt and equity funds. ULIP tax benefits are available for the policyholder to lessen their financial burden, just like with all other life insurance plans.
What Are The Tax Benefits One Can Avail Under ULIPs?
ULIPs are the best financial vehicle for long-term investing because of their tax benefits. Even while ULIPs provide a number of tax advantages, just a handful of them make ULIPs the best tax-saving approach for modern investors. ULIP taxation is an excellent option for saving money on taxes without very much hassle. You also get access to valuable tax-free services that would've been pricey elsewhere.
Following are the tax benefits that an individual can avail under ULIPs -
- Tax Deductions - The premium for a ULIP is qualified for a tax deduction under Section 80C of the Income Tax Act of 1961. However, for this reduction to be valid, the premium must be less than 10% of the total covered under the plan. For premiums that exceed a particular amount, the deduction value is still limited to 10%.
- Maturity Benefits - When a ULIP matures, you receive the amount that is greater than the insured amount or the total value of the unit-linked assets. This payment must be deemed to be made in accordance with Section10(10D) of the Income Tax Act of 1961. The highest premium amount should not exceed 10% of the value of the cash assured.
- Partial Withdrawals - Partial withdrawals are permitted once the ULIP's necessary 5-year lock-in period has ended, tax-free. However, the withdrawal amount is capped at 20% of the total sum insured value. This helps you to reduce your tax burden and makes it possible for you to withdraw some of your savings for a number of purposes, such as retirement, marriage, child education, etc. You are therefore permitted to occasionally withdraw money.
- Death Benefit - The death benefit received by your nominee or family members under a ULIP is, in fact, tax-free. This benefit consists of both the entire amount covered and the profits from market-linked investments undertaken pursuant to the plan.
- Singular Plan - ULIPs provide a lot of benefits over mutual funds, PPFs, and other common insurance policies. It provides life insurance but does not help with wealth accumulation. On the other side, mutual funds offer you tremendous profits but no insurance. However, ULIP plans offer a bridge and an additional benefit of tax savings.
Endnotes
ULIP serves as the appropriate connection between high-risk life insurance protection choices like short term plans and low-risk investments like mutual funds. High returns are indeed provided in conjunction with the ULIP tax benefit.
Also read: How Does ULIPs Work?
