Are ULIPs the Best Tax-saving Investment Options?

Demonetization has not only affected the spending habits of people but has also affected their investments. Banks have lowered the interest rates on FD (fixed deposits) and we expect that the rates will go down further. Looking at the current market situation, Life insurance has become one of the most preferred options for those who are seeking the best tax-saving option to invest their money.

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Among all this hustle and bustle, ULIP (Unit Linked Insurance Plan) has emerged out as quite a reliable solution for wealth creation in the long run. The main reason behind this rise is the benefits this plan offers to its policyholders. Users get good returns, financial protection and also save their taxes. 

ULIP offers several features that are beneficial for investors, such as:

  • Investing premium in a mix of equity and debt funds in varying proportions
  • Inter-fund transfers via switches
  • Tax exemption

ULIP is one of the best investment options, which is different from all the other market-linked investment plans. The main reason behind this is that a ULIP offers the dual benefits of investment and insurance and it also offers tax exemptions under Section 80C and 10(10D) of the Income Tax Act. 

Saving money is the first step towards financial planning, but when it comes to sensible planning you need to make a strategy that helps you to save your taxes. Nowadays, we have several tax-saving options such as life insurance plans, PFs and PPFs, ULIPs, ELSS investments, and more. 

As we have a lot of investment options available in front of us, we get confused while picking out the best option. So, to pick the best option, you need to find out the one that offers benefits such as wealth protection, tax savings, value appreciation, and strategic flexibility. The traditional insurance plans certainly offer life protection as well as tax benefits, but they offer limited scope for wealth creation. 

When it comes to mutual funds, they offer good returns with zero life protection and limited opportunities for saving taxes. Traditional tax savings options (like PFs) are unable to produce inflation-proof returns in the long run. However, ULIP is an efficient financial tool that works as a good investment option, and also offers additional benefits. Let’s find out! 

Strategic Planning 

For a period of a minimum of five years, the policyholder is not allowed to make any withdrawal. This period is called the lock-in period under ULIP. Even if partial withdrawals are allowed, they cannot surpass 20% of the fund value, as assured at the time of taking the policy. Above all, these withdrawals are completely tax-free, if carried out after completing the lock-in period. 

This feature helps the policyholder to use ULIP as a tool of investment to fulfill their financial goals. If you want to make a lot of money for buying a house in the near future or for the higher education or marriage of your kids, you should start investing in a ULIP as soon as possible. It will not only help you grow money but will also keep your loved ones protected against the financial uncertainties of life. 

Tax-exemptions on Premiums

The money invested in Unit Linked Insurance Plans is invested further in debt, equity, or money market instruments. Depending on certain conditions, the policyholders enjoy the benefit of the tax deduction on the premiums paid. This rule is stated under Section 80C of the Income Tax Act. The current limit for tax deduction is up to Rs. 1.5 lakh, which means that the premium paid for your ULIP will be deducted from your taxable income. 

Top-up your Investments 

ULIPs offer periodic top-ups that allow the policyholders to invest their excess cash. If the premium paid for these top-ups does not exceed 10% of the assured sum, then the policyholder can also leverage tax benefits under section 80C and also exemptions under section 10 D. 

Above all, these exemptions do not hamper your financial planning, as these top-up investments generate additional returns to handle your tax liabilities.

The Final Verdict 

Those who want high returns, tax exemptions, and assured life cover simultaneously must invest in ULIPs. People often invest in mutual funds besides purchasing a life insurance plan. However, balancing multiple investments can prove to be a difficult task. Therefore, you need to search for a product that offers comprehensive benefits. In that sense, ULIP is the best instrument that helps you enjoy multiple benefits like insurance, savings, investments, and tax-saving. They provide you with a high return, decent financial life cover, and tax exemptions. Above all, the risk associated with ULIP varies from high to low. So, ULIP is indeed the best tax-saving tool for investment.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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