Tax Benefits of ULIPs that Every Smart Investor Must Know Of


Understanding What ULIPs Are

Unit linked insurance plans (the acronym ULIP’s full form) offer their policyholders with dual benefits that include insurance coverage in addition to the ability to generate returns on investment.

Policyholders of ULIP plans have the value of their investment portfolio checked by the insurance company from whom they availed of the plan. This is used such that the insurance company can ascertain the value of the cash or returns they will be liable to paying the policyholder in question.

Premiums paid are divided in half such that one half is allocated towards providing protection. The remaining half is invested in an asset that is linked to the market. This asset is chosen in accordance to the policyholder’s preferences. Debt and equity investments are equally exposed to on behalf of the policyholders such that they can generate returns and safeguard their corpus simultaneously.

ULIPs are a great way to generate long term wealth with ease as they allow policyholders to choose their form of investment keeping in mind their risk profile as well as their desired returns.

Tax Benefits ULIPs Provide

  1. Tax benefits applicable to premium – One of the primary tax benefits applicable to ULIPs is the fact that the entire premium paid is deductible from the policyholder’s taxable income. As per Section 80C of the Income Tax Act of 1961, this is applicable up to an amount of INR 1.5 Lakhs and is subject to the stipulations outlined within it. Moreover, life coverage should amount to at least 10 times of what the premium paid amounted to.
  2. Tax benefits applicable on maturity – Provided all premiums have been paid by the time the plan matures, policyholders aren’t required to pay any taxes at the time of maturity based on the rules mentioned in Section 10D of the Income Tax Act of 1961 and which are subject to the stipulations outlined within it.
  3. Tax-free partial withdrawals – IN the event that a policyholder would like to withdraw money from their ULIP following the five year lock in period they aren’t required to pay any taxes on the money withdrawn provided of course the amount withdrawn doesn’t surpass a value amounting to 20 percent of the fund’s value.
  4. Tax-free pay-outs applicable in case of death – If for insurance the policyholder dies, their beneficiaries are entitled to the entire sum assed or else the total value of the fund in which the policyholder previously invested. They are given whichever of the two has a higher value. This entire pay out provided in the event of the policyholder’s death is exempt from any and all taxes except. Key man policies are the only exception to the rule.
  5. Deduction on top-ups – ULIPs permit investors to increase their investment amount by availing of periodic top-ups. In the event a policyholder has additional money to spare, they can invest this money such that they can minimize their tax outgo. Top-ups too, are eligible for the previously mentioned income tax deductions mentioned under Section 80C of the Income Tax Act of 1961.


ULIPs make for viable investments owed to the dual benefits they offer their policyholders. Visit Finserv MARKETS today such that you can explore the ULIPs on offer and avail of a policy that serves you best.

You May Also Like

About the Author: John Vick

Leave a Reply

Your email address will not be published. Required fields are marked *