Benefits of Investing in Unit Linked Insurance Plan

Benefits of Investing in Unit Linked Insurance Plan (ULIP)

ULIPs, or Unit Linked Insurance Plans, are a popular tax-saving investment avenue that comes with the dual benefits of life insurance cover and wealth accumulation. Because of this dual service offered by the plan, the benefits one can gain from getting such a plan are also doubled. Some of these include higher returns offered than tax-saving post office deposits, National Savings Certificates (NSC) and fixed deposits, with the same 5-year lock-in period. Other than this, the comprehensive advantages of having an ULIP by your side are as follows:

Benefits of Investing in Unit Linked Insurance Plan
Benefits of Investing in Unit Linked Insurance Plan

[1] Flexibility to choose a ULIP Plan based on your needs:

With a ULIP, you can choose a plan based on your objectives. These will have different types of investment options based on risk factors, payment of premiums, pay-outs, etc. Unlike other investment plans where you have to micromanage, the ULIP does that for you, based on your broader goals. You can choose from the following objective-

  • Funding Children’s Education
  • Wealth Building
  • Retirement Plan
  • Health Plan

 [2] Flexibility to change your Life-Cover

With a ULIP, you can decide the assured sum that your nominee will receive. As time passes and your investment grows, you can change this assured sum as per your requirements. You may need to do this because of new developments in your life such as marriage, kids, retirement, etc., that will require funds.

[3] Ability to choose a Top-Up Amount

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If you wish to maximise the profits from your investment, a ULIP offers you the ability to pay a top-up on the premiums. This effectively increases the amount you invest every month, resulting over time in higher returns.

[4] ULIPs offer Liquidity

With a ULIP plan, after the primary lock-in period of 5 years, you can withdraw a portion of your invested funds as and when you require. This enables you to have a safety net in case of any emergency without disturbing your overall investment and insurance plan.

[5] Ability to add useful riders

The objective of a ULIP is to be both an investment and insurance. To make a ULIP even more safe, you can add certain riders by paying a nominal charge. Following are the types of riders available within most of ULIPs and how they can help you-

Waiver of Premium Rider: If your regular income is hindered due to unforeseen circumstances like unemployment, pay cuts, injury, etc., you can use this rider to waive your premium payments till you get back on your feet.

Accidental Death Benefit Rider: This rider provides an extra layer of security. In case of accidental death of the insured person, this rider pays out an additional rider sum along with the insured amount.

Critical Illness Rider: In case of any medical emergency, opting for the critical illness rider allows you to receive a lump-sum amount to help with the treatment. This ensures your savings are not exhausted due to these unfortunate incidents.

Depending on the plan provider, there are more riders you can choose from, depending on your needs.

[6] Avail a wide range of Tax Benefits:

Tax Benefits on Premium Paid and Maturity: According to the Income Tax Act of India, Section 80(C) and 10(D), you can avail a tax deduction of up to ₹1,50,000 on premium payments towards your ULIP plan. Make sure you stay invested in a unit-linked insurance plan for at least 5 years to receive all its benefits, including tax savings.
A ULIP is the only market-linked investment avenue that doesn’t come with tax liability even when it matures. So, you can save tax in two ways – on premium payment and on receiving the maturity amount. Just remember that the premium paid needs to be below 10% of the sum assured so you can get tax exemption when the plan matures.

Tax-Free Withdrawals: Tax-free withdrawals are available from a Unit-linked Insurance Plan upon the policyholder’s unfortunate demise. In that case, the family gets the sum assured, in addition to the returns from the plan. This pay-out is not taxed.

You can also avail tax-free partial withdrawals from a ULIP. When you withdraw funds from the plan after the lock-in period of 5 years, you need not pay taxes on the amount withdrawn. Just make sure that the amount you withdraw does not exceed 20% of the total fund value.

Tax Deductions on Top-Ups: ULIPs also allow you to increase your investment by opting for periodic top-ups. You can benefit from tax deductions on these top-ups as well, under Sections 10(10D) and 80(C).

Protection from LTCG Tax: Profits earned from ELSS mutual funds, equities and shares above ₹1,00,000 are subject to long-term capital gains tax. However, LTCG tax is not applicable in the case of ULIPs.

Long-Term Tax Benefits: If you invest in a Unit-linked Insurance Plan over a long period, you can enjoy long-term tax benefits as well. Since it has a lock-in period of 5 years, you can save tax consecutively for at least 5 years on your premium payments. In case you decide to continue with the plan, you can enjoy further tax savings over the following years.

Top ULIP plans, such as Edelweiss Tokio’s Wealth Secure+, provide benefits such as life insurance, wealth creation, and tax breaks under Section 10(10D) on maturity benefits and Section 80(C) on premium payments.

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