ULIPs are best for long-term savings. A 5-year lock-in period encourages goal-oriented investing.
They help you grow your wealth while protecting your family’s future.
ULIPs offer tax deductions under Section 80C and exemptions under Section 10(10D).
Post lock-in, you can access funds in emergencies or invest more via top-ups to boost your returns.
Many of us are last-minute tax planners. Tax planning is often not part of financial planning at the beginning of the year, but a hasty decision towards the end of the year. You might go for loans and investments without putting much thought into them. However, it is important to keep your long-term financial goals in mind. One of the popular tax-saving instruments is ULIPs.
A ULIP or a Unit Linked Insurance Plan is an insurance-cum-investment plan. A part of the premium is paid towards a life cover, and the other part is invested in funds chosen as per your financial goals and risk appetite. The investment part of a ULIP could be in equity, debt, or balanced schemes. Multiple ULIP benefits make them good strategies for the long term.
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ULIPs generally come with a lock-in period of 5 years. This inculcates a habit of saving and investing for the long term on a regular basis. The premium payments can be monthly, quarterly, half-yearly, or even yearly, depending on your insurer. Once you sustain it for five years, it becomes easier for you to save, invest, and allocate in the later years. You also learn about the market and which funds could be more profitable.
The very essence of a ULIP is that it provides you with a life cover along with an investment. Once you invest, you can simultaneously work towards your financial goals while also securing your family's future. This takes a lot of financial management burden off your shoulders in the long run.
Insurance policies are very popular as tax-saving instruments. However, they offer fixed returns and cannot beat inflation. On the other hand, a ULIP invests partly in equity and debt funds. The option of switching investments gives you the flexibility to decide how much of your money must be invested in equity at a certain point of time. These features together make for potentially better returns as compared to pure insurance policies.
Since you have the option to choose from multiple fund options, you can calculate and measure risks. The facility to switch between funds also gives added flexibility. Unlike shares, you don't have to constantly keep track of the companies that your fund is invested in. You just need to decide on allocations based on the performance of your fund.
One of the main ULIP benefits is that premium payments are tax-deductible under Section 80C of the Income Tax Act. The maturity proceeds are also exempt from tax under Section 10(10D). Moreover, ULIPs are one of the few instruments to not fall under the ambit of the Long Term Capital Gains Tax (LTCG Tax) unless they are big-ticket ULIPs. Wondering what this means? ULIPs whose premium amount exceeds ₹2.5 lakhs are considered big ticket ULIPs. Post the budget announcement in 2021, these were subjected to a tax deduction at 10%. Now, in 2025, the tax deduction rate has further been raised to 12.5% which will come into effect from April 1, 2026. All ULIP plans that are being held for more than a year will be subject to this tax rate.
Another thing about ULIPs is that =fund switches and partial withdrawals, too, are tax-free. Thus, a ULIP makes for an excellent tax saving device in the long-term.
ULIP maturity benefits are taxed at 10% as LTCG if the annual premium is above ₹2.5 lakh, but death proceeds remain tax-free.
Source: India Today
Once your lock-in period of 5 years is over, you can make partial withdrawals. This allows you the leeway of using a part of your investment for emergency financial needs while also continuing with your long-term goals.
When you have a surplus of savings that you want to invest, you can opt for a ULIP top-up instead of a new investment altogether. Top-ups are usually charged at just 1%-3%, which will generally be lower than the regular premium cost. Thus your average cost becomes less. A top-up will cost you less and increase your investment and potential returns while also increasing your life cover.
It is always a good time to invest in a ULIP. If you haven't invested yet, check out the iSelect Guaranteed Future Plus from Canara HSBC Life Insurance. It offers the option of a return of the mortality charge. Other benefits include loyalty additions and wealth boosters.
Canara HSBC Life Insurance offers online ULIP plans that blend life insurance protection with investment growth, helping you build wealth while securing your family's future.
