Asset Linked Insurance Plans combine the wealth-appreciation potential of investments with the protecting protection of an insurance plan.
Your regular premium is divided into two parts: a component that goes towards paying for your insurance coverage and a portion that goes towards funding various investment vehicles. The policyholder can invest in high-, low-, or medium-risk instruments. Equity, debt, or a combination of both investments are available to policyholders. Policyholders can also move funds across different instruments in accordance with changing financial objectives.
The ULIP’s Exempt-Exempt-Exempt tax benefit
ULIPs also allow you to increase your wealth competitively, and the investment returns from ULIP instruments are tax-free. Although market-based investments like mutual funds have gained popularity recently as a vehicle for investing, the capital accumulated through a mutual fund scheme is still liable to the Long Term Gains Tax (LTCG). Contrarily, ULIPs are immune from LTCG, giving them a major advantage over similar financial vehicles.
The funds received at plan maturity, the periodic partial withdrawals that may be made, and the regular premiums paid to finance ULIPs are all exempt from taxes. Because of these three tax exemptions, ULIP plans are considered EEE (exempt exempt exempt).
The ULIP calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details
Tax deductions for ULIP premiums
Section 80C of the Income Tax Act allows for a tax deduction of up to 1.5 lacs for premiums paid to support ULIP plans. You can reduce your taxable income by subtracting your total premiums for ULIP plans from your yearly income. Your tax burden will decrease as a result, and you can move to a lower tax bracket altogether.
Partial withdrawals from ULIPs: The ability to make partial withdrawals from ULIPs further enables policyholders to handle a variety of emergencies and pay for expensive family vacations or necessary home renovations. A 5-year lock-in term applies to ULIPs, after which the policyholder may withdraw funds based on needs or objectives. A ULIP corpus’s partial withdrawals are entirely tax-free. This frees up the policyholder to take care of their basic needs and even indulge sometimes without increasing their tax burden.
ULIP Maturity Fund
The corpus accumulated over the course of a ULIP plan is exempt from taxes under Section 10(10D) of the Income-tax Act. When a fund matures, the amount that the policyholder receives is free of tax obligations. This prevents further taxation from eroding the enviable ULIP gains from your long-term, wise investing choices.
This is how ULIPs may provide you with the best of both worlds: excellent yields and a plethora of ULIP tax benefits.
ULIP Plans protect your child’s education from shocks to future inflation, rising tuition costs, or unlucky events. They enable you to triple-tax benefit from ULIPs under Sections 80C, 80CCC, and 80CCD of the Income Tax Act.
Long-Term Objectives arising in nuclear families, an increase in life longevity, and a lack of adequate funds have all contributed to the urgent need for retirement plans, according to ULIP. This retirement plan will guarantee your independence. The force of compounding allows you to build up a sizeable corpus of money that will last you a lifetime.
ULIP Plans are designed to provide policyholders with the highest possible investment returns. With an investment in top-rated funds, you can earn returns of up to 25% over a five-year period.
With reasonable premiums, ULIPs can be used to accomplish a variety of short- and long-term objectives. Additionally, ULIPs let you enjoy the benefits of wise financial planning without worrying about the tax implications of your gains.
ULIPs offer several ULIP tax benefits to policyholders, including the Exempt-Exempt-Exempt (EEE) tax benefit. Under the EEE tax benefit, the premiums paid towards ULIPs, the returns earned on the investment, and the maturity amount received at the end of the policy term are all exempted from tax. This makes ULIPs an attractive investment option for those looking to save taxes and earn good returns on their investments.
However, it’s important to note that ULIPs come with various charges and fees, which can impact the returns earned on the investment. Additionally, ULIPs are long-term investments, and premature withdrawals can attract penalties and fees.
You can use a ULIP Calculator to estimate future returns and the value of a ULIP investment.
Therefore, before investing in ULIPs, it’s essential to carefully consider the policy’s features, charges, and fees and assess whether the investment aligns with your financial goals and risk appetite. Consulting with a financial advisor can also help you decide whether ULIPs are the right investment option for you.