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 for a best tax-saving option to invest their money. According to the latest IRDA report, the total premium for the first year in November 2016 jumped to Rs 16,000 crore, as compared to year-on-year premium which was Rs 7,500 crore recorded back in November. Growth was recorded on both single as well as regular premium figures during this period. 

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. 

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

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 obviously 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, in order 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 a 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 minimum five years, the policyholder is not allowed to make no withdrawal. This period is called the lock-in period under ULIP. Even if partial withdrawals are allowed, it 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 fulfil 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 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 upto Rs. 1.5 lakh, which means that the premium paid for your ULIP will be deducted from your income that is taxable. 

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

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 do 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 return, 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 a high returns, decent financial life cover, and tax-exemptions. Above all, the risk associated to ULIP varies from high to low. So, ULIP is indeed the best tax-saving tool for investment. 

Written By: PolicyBazaar - Updated: 17 August 2020
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
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