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5 Reasons Why Ulips Are One Of The Best Tax-saving Instruments

By Author: Edelweiss Tokio
Total Articles: 8

Unit-linked insurance plans (ULIPs), are life insurance products, including are widely known to be reliable and safe long-term wealth creation solutions. Well selected unit-linked endowment plans, combine life protection, returns, and savings in a single product.

Tax benefits of ULIP Insurance –
ULIP insurance plans have several investor-friendly features, not limited to the ability for investors to invest in a mix of equity and debt funds in various proportions. Investors can also perform inter-fund transfers through switches without attracting any taxes. As an investment option, ULIPs stand apart from all other market-linked investment options, since the gains from even a debt fund in a ULP plan are tax-free. This article explores some of the main reasons why ULIP insurance plans are one of the best tax-saving instruments available.

Tax exempted Withdrawals–
ULIP insurance plans or unit linked endowment plans offer great tax savings on withdrawals that are not available to mutual fund investors. In ULIP plans, withdrawals are possible if the policyholder dies or the policy reaches maturity. Partial withdrawals are also possible and are available at the discretion of the investor or policyholder.

Tax exempted Death benefit –
The death benefit that is paid under a unit-linked endowment plan is completely tax-free, similar to the assured family protection available through conventional life insurance products. One obvious benefit of a ULIP insurance plan is that the payout can be greater than the sum assured if the returns on the unit-linked instruments have been good.

Tax exempted Sum Insured –
When a ULIP policy reaches maturity, the policyholder receives the sum assured or the value of the ULIP investments, whichever is greater. The payout from a unit-linked endowment plan, irrespective of whether it is the sum assured or the value of the fund, is exempt from taxes under u/s 10(10D) of the Income Tax Act of India. This is a significant benefit of investing in a ULIP plan as compared to investing in a mutual fund since income generated in a mutual fund is fully taxable.

Non Taxable Partial Withdrawals –
ULIPs come with a minimum 5 year lock-in period. After this period has lapsed, the policyholder can make partial withdrawals. These partial withdrawals, however, cannot exceed 20 percent of the fund value of the ULIP insurance policy. The great part about ULIPs is that even these partial withdrawals are completely non-taxable as long as they are done after the minimum lock-in period has lapsed.

The above are some of the main reasons why ULIPs are one the best and most-favoured tax-saving instruments. Investing in ULIPs provides an investor with the triple benefits of high returns, life cover, and tax savings. It is best to compare ULIP plans to choose the best ULIP insurance plan to avail the best plan for one’s individual need.

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