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ULIP Benefits: 5 Advantages of Choosing A ULIP Plan

By : Bajaj Allianz Life

A Unit-Linked Insurance Plan or a ULIP offers a combination of life insurance and investment opportunities under one horizon. A ULIP-holder may get to enjoy two major advantages, a life cover and the chance to earn market-linked returns that come with associated risks, under one financial product.

If one is armed with the right information, they may be able to reap more benefits from their ULIP plans. Here are some major advantages of a ULIP:


Benefits of ULIPs #1 - Flexibility [1]


The flexibility aspect of a ULIP may be said to be one of its most appealing feature. When you opt for a ULIP, you receive the:


• Flexibility to choose your fund option:


With ULIPs, one may choose to invest in equity funds, debt funds, liquid funds or a combination of funds. Conservative investors may find debt options a better fit, while those with a higher risk appetite may find equity options more suitable. A combination of both may also be chosen if you may be looking to balance your investments.


• Flexibility to switch funds:


One of the remarkable benefits of a ULIP is that the investor may switch their funds from one asset class to another as per their risk appetite and market conditions. Please read sales brochure to understand the benefit. This will vary from policy to policy.


• Flexibility to change your premium investment amount:


You may increase the amount of money you park in a ULIP by opting for top-up options. By increasing the money invested in the ULIP via regular top-ups, you may receive higher returns over the long term from your investment.


• Flexibility to increase coverage:


Aside from a life cover and market-linked opportunities, the advantages of a ULIP may also extend to increased protection in the form of riders. These are add-on coverage aspects, such as the critical illness rider, the waiver of premium rider, and so on, that may be opted for by paying a nominal extra premium.


Benefits of ULIPs #2 - Transparency [1]


Transparency may be said to be one of the benefits of a ULIP, since there may be multiple features to help the policyholder have a clear and well-informed decision, such as:


• Benefit illustration:


A benefit illustration may usually offer the policyholder an idea of the usage of their premiums, the charges they may incur, and the potential growth of their investments. This illustration may be provided to you when you buy a ULIP.


• Free-look period:


Like other life insurance plans, once you purchase a ULIP, you will have a free look period, within which you may review the policy. If you find yourself unsatisfied with the policy advantages, you may return it within the free look period and receive a premium refund, after any deduction of the applicable charges.


Benefits of ULIPs #3 – May Help Meet Long-Term Goals


ULIPs may often be considered long-term investments, as one may reap better benefits of a policy like a ULIP if one stays invested for the long term. The longer the investment horizon, the more may be the benefits of compounding.

The returns from a ULIP might be used for various long-term goals, such as children’s higher education, making a down payment for a house, creating a fund for retirement, and so on.


Benefits of ULIPs #4 - Tax Benefits


One may be able to enjoy a host of tax advantages of a ULIP at various stages of the plan, provided that the terms and conditions may be met.


• Stage 1: Deduction on premium payment under Section 80C[2]


The premium paid for life insurance policies, including ULIPs, is eligible for deductions up to Rs 1.5 lakhs under Section 80C of the Income Tax Act, 1961. The premiums should not be more than 10% of the death sum assured if the policy is bought after 1st April 2012 to claim the deduction. For policies issued before the given date, the premium may not be more than 20% of the death sum assured. Note that Section 80C tax benefits are only be applicable to taxpayers under the old tax regime.


• Stage 2: No taxation on accumulating returns [1][3]


Returns that may be accumulated in the ULIP investment and remain in the ULIP are not taxable as per prevailing tax laws.


• Stage 3: No taxation on switching [1]


Switching from one fund to the other via the fund-switching option is not taxable.


• Stage 4: Tax exemption on maturity or death benefit payout [1][3]


The sum assured received from a life insurance policy, including a ULIP, is exempted from taxation under Section 10 (10D) of the Income Tax Act, 1961 as per the provisions stated therein. However, if the premium of a ULIP bought after 1st April 2012 is more than 10% of the death sum assured, tax will be applicable on gain from policy. ULIPs bought before 1st April 2012 may have a premium of not more than 20% of the death sum assured to be eligible for this benefit.

As per amendment in Budget 2021, the returns of ULIPs bought on or after 1st February 2021 may be taxed if the yearly premium is more than Rs 2.5 lakhs. Returns from such policy will be treated as Capital Gain in the hands of recipient. Furthermore, a 10% tax will be applicable on gain amount equity oriented ULIPs. Note that tax will be applicable on gain amount which is more than Rs 1 lakh. For debt oriented ULIPs , long term gain will be taxable at a 20% rate.


Benefits of ULIPs #5 - Liquidity [1]


ULIPs have a lock-in period of five years. Once the policyholder completes the lock-in period, they may make partial withdrawals from their plan, as per the terms and conditions of the plan. These withdrawals may be used to meet one’s urgent needs as well as fund some short-term goals.

Thus, one may enjoy a variety of benefits of ULIPs by taking advantage of the points mentioned above. You may also want to reach out to your agent or insurer to get a more comprehensive understanding of ULIPs.






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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

**Past performance is not indicative of future performance.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.