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Investment That Reaps Tax Benefits.
Intrigued? Read And Know More!

A Unit Linked Insurance Plan is an impartial savings plan that can be used to obtain funds for your financial goals. It helps you safeguard your future with the security of life insurance, while at the same time earning capital gains on your investments.

You can make more money by investing in ULIPs than tax-saving fixed deposits, NSCs, and post office deposits of equal maturity. The best part is that your ULIP premium payments as well as the maturity benefits are tax-deductible.

Moreover, conservative tax savings options like PFs are unlikely to generate inflation-proof real returns over the long run. Since ULIPs offer financial investments, they can be used to bridge the gap between various investment options and enjoy tax-saving in multiple ways.

1. Tax benefit on Premiums

When you invest in a unit-linked insurance plan, the premiums you pay for the policy benefits are eligible for tax deductions with a limit of up to Rs. 1.5 Lakhs in a financial year as per section 80C of the Income Tax Act of India. However, to be eligible for this benefit, your life cover should be at least 10 times the annualized premiums paid.

2. Tax Benefits on Maturity

Among the various financial products available in the market, ULIPs are the only instruments that provide tax exemption even at the maturity of your policy. For this to be applicable, you must make sure that your premium amount is 10% of the assured sum.

3. Tax-Free Death Benefit

As you may already know, in the event of your unfortunate demise, your family receives a payout known as a death benefit to manage their day-to-day expenses in your absence. What you don’t know is this amount is completely free from taxes as per the mandates of the Income Tax Act.

4. Tax-Free Partial Withdrawals

Once you have finished the lock-in period of your policy, you can make partial withdrawals from your unit linked insurance plan. These withdrawals are also exempted from taxes, provided that the withdrawal amount is less than 20% of your total fund value.

5. Tax Deductions on Top-Ups

If you want to increase your investment amount in ULIPs based on the performance of your funds, you can purchase top-ups in exchange for a specified fee. As per section 10D and 80C of the Income Tax Act, these top-ups are also eligible for tax deductions. Moreover, there’s no long-term capital gains tax on returns gained from ULIPs as well.

6. Tax Benefits in the Long-Term 

In case you’re planning to invest for the long term, you can make the most of ULIP tax benefits. As the standard lock-in period for ULIPs is five years, you can enjoy consecutive tax savings over the years and even choose to gain more benefits by extending your policy coverage.

Best ULIP Plans in India for Tax Saving

1. Bajaj Allianz Future Gain

Bajaj Allianz Future Gain is an insurance plan with a unitized structure. This means that the risks of insurance and investments are separated, but they also have a higher degree of flexibility in terms of funds allocation.

This flexibility allows you to switch back and forth between different funds as per the returns gained in the past. It is a flexible, high-coverage policy that offers two portfolio strategies to choose from, depending on your financial requirements.

Bajaj Allianz Future Gain offers you the option to reduce your premiums according to your requirements. Moreover, you are free to choose among seven different fund options to make your investments more personalized.

2. Canara HSBC Oriental Bank Of Commerce Invest 4G

The Canara HSBC Oriental Bank of Commerce Invest 4G plan is a ULIP (Unit Linked Insurance Policy) plan that allows you to invest your money in several different types of assets and provides you with a comprehensive life cover for the financial safety of your loved ones.

The plan offers 7 different funds and 4 portfolio strategies to invest your money, along with additional benefits like Wealth Boosters and Loyalty Add-ons. It will provide a return of mortality benefit at the maturity of the plan too.

You can also avail of the partial withdrawal facility available in this plan to fulfill the unexpected need for capital. Moreover, you can even take advantage of market movements by switching the fund options as per your preferences.

3. ICICI Pru Signature

If you want to create a consistent income stream for the future, you can invest in this special savings plan. It's an investment vehicle with systematic withdrawals, which means you can make regular withdrawals from the policy upon its maturity.

Moreover, you don't have to pay a single rupee in allocation charges for this plan and enjoy tax savings for premiums paid under section 80(C) and maturity proceeds under section 10(10D) of the Income Tax Act. 1961.

At five-year intervals beginning from the 10th year onwards, the policy offers wealth boosters to help you increase your financial corpus. The company also offers the possibility of extending the term of the policy all the way until you turn 99 years of age.

4. SBI Smart Wealth Assure

SBI Smart Wealth Assure is a non-participating, individual, unit-linked life insurance policy where you pay a single premium for the entire tenure. It is designed to provide assured monthly payouts to policyholders and has three variants, which allow policyholders to invest in different types of funds that offer market-linked returns. The plan also offers liquidity by allowing you to make partial withdrawals after completing the lock-in period of five years.

The Takeaway

Unit Linked Insurance Plans or ULIPs are a great way to save tax. It is an investment option that combines life insurance and market-linked investments into one single entity, which offers you multiple benefits. As you can see, ULIPs do provide you with many tax benefits. This article has given you a good overview of the main benefits associated with ULIPs.