Saving Tax With Unit Linked Insurance Policies (ULIP)


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Updated on Mar 07, 2023

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How To Save Income Tax With Unit Linked Insurance Policies (ULIP)

Unit Linked Insurance Plans, popularly called ULIP, is one of the most effective and trustworthy investment instruments these days for saving tax. It comes with growth in wealth and life insurance protection. One of the advantages of ULIP that sets it apart from all the other investment tools is the tax-saving benefit option that is available due to flexibility. This is an investment plus insurance tool in which the policyholder gets life cover as part of the investment plan. This is a consistent option that helps in fulfilling the wealth creation goals in the longer run. One of the reasons for this is the combination of tax savings, returns, and insurance.

Things That You Should Know About ULIP Tax Benefits

Although more popular for its short lock-in period and better returns, ULIP is also getting attention for saving taxes. Let us try to find some of the things that you should know about ULIP tax benefits.

  • An insured can avail of a tax deduction of up to INR 1,50,000 on the premiums of the policy that have already been paid for the ULIPs under sections 80C and 10D of the Income Tax Act, 1961. By continuing the plan for 5 consecutive years, one can enjoy exemption on taxes.
  • ULIP is an investment plan that is linked to the market. It comes with a maturity amount, that’s free of taxes according to the current laws like section 10 (10D) of the Income Tax Act, 1961. To avail of tax benefits on maturity, the premiums paid have to be less than 10% of the sum assured, provided the plans have been purchased after April 1, 2012. If you have bought the plans after April 1, 2012, the maturity amount will be free of taxes. Also, the annual premium should be lower than 20% of the sum assured. In case of the death of the policyholder, the death benefit will also be tax-free.
  • If the policyholder passes away, the family of the insured may receive a sum assured amount and also the returns that are generated by the ULIP plans. The payout is released under the Income Tax rules.
  • In the case of ULIPs, partial withdrawals are free of taxes. If you withdraw money from your ULIP plan after 5 years of the lock-in period, you will not have to pay any tax for one such withdrawal. The only condition is that the withdrawal amount should not exceed 20% of the amount of the fund.
  • With ULIP, you get the option to increase the investment by buying top-ups. These top-ups are allowed for income tax deduction under sections 80C and 10D.
  • On a long-term investment, you will be able to enjoy ULIP tax benefits. The lock-in period is around 5 years and one can also avail of benefits for 5 years by saving on taxes on the premiums that you pay. You will be able to get more tax benefits for ULIPs if you continue with your policy.
  • As compared to other investment plans such as PPF, traditional insurance policies, and mutual funds, ULIPs are much more beneficial for the policyholder. Although you will get better returns from mutual funds, there is no insurance coverage. With a ULIP plan, you will also get the extra benefit of tax savings.

Read More: Beginner’s Guide to ULIPs and Their Benefits 

Features and Benefits of ULIPs

Now that we know the tax benefits that come along with ULIP, let us also discuss the features as well as benefits of ULIPs.

  • ULIP aims at providing maximum financial support for your investment through tools and returns that are linked to the market. Along with these plans, wide life coverage benefits also come throughout the policy term.
  • With ULIPs you get the option to switch between debt funds and equity anytime during the tenure of the policy. However, in a financial year, you will be able to go for a fixed number of switches, and you do not even have to make any additional payment. You are advised to go through the policy brochure as well as the documents to find out more information on ULIP plans and the number of switches you can avail of.
  • All the ULIP plans come with a 5 years lock-in period. Nevertheless, as a policyholder, you can choose a fixed number of withdrawals from the accrued fund. However, you have to complete the lock-in period. There is no need for you to pay any extra money for this.
  • As you consider investing in ULIPs, you will be able to redirect your future premiums between the available fund options. You will have to provide the policy number and specify the type of plan towards which you are redirecting your premiums. You also might need to mention the percentage of premium that is allocated for a particular type of fund.

Also Know: 11 ULIP Charges You Should Be Aware Of

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A Few of the Best ULIP Plans

Mentioned herein below are some of the best ULIP plans that you can come across.

Company name Name of plans Minimum age Minimum premium
Life Insurance Corporation of India LIC Endowment Plus 90 days – 50 years INR 3,000
HDFC Life Insurance HDFC Life ProGrowth Plus 14 – 65 years INR 2,500
HDFC Life Insurance HDFC Click 2 Wealth 30 days – 60 years INR 3,000
SBI Life Insurance SBI Life Wealth Assure 8 – 60 years INR 4,166
ICICI Life Insurance ICICI Pru Signature 30 days – 60 years INR 5,000
Bajaj Allianz Life Insurance Bajaj Allianz Future Gain 1 – 60 years INR 2,500

You can check out some other Unit Linked Insurance Policies online and make a selection basis your financial goals and financial cover sought.

Also Read: Unit-Linked Insurance Plans (ULIP): Top Benefits and Advantages of Investing in ULIP in 2023

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FAQs on Unit Linked Insurance Policies (ULIP)

Which is the unit linked insurance plan?

The full form of ULIP is Unit Linked Insurance Plan. A ULIP is an insurance plan that offers the dual benefit of investment to fulfil your long-term goals, and a life cover` to financially protect your family in case of an unfortunate event.

What is the benefit of unit linked insurance plans?

ULIPs provide the flexibility of premium payment. You have the option to move your money between equity and debt funds. ULIPs allow you to withdraw a part of your money whenever you need it. You can also choose where to invest, depending on your risk appetite.

What is the disadvantage of ULIP?

ULIPs have a lock-in period of 5 years, before which you cannot withdraw your investments. Even if you surrender your ULIP within 5 years, withdrawal would have to wait until the lock-in period is over. Most insurers will offer you free switches of your funds up to a certain point.

Which one is better sip or ULIP?

Since SIPs help you invest in mutual funds or ELSS (Equity-Linked Saving Schemes) regularly, they allow you to grow your wealth steadily over a long period of time. In this regard, ULIPs offer an additional benefit. You can get life insurance cover, as well as enjoy the benefits of an investment.

May 18, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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