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Why ULIPs Are One of the Best Tax Saving Investments?

Why ULIPs Are One of the Best Tax Saving Investments?

With the advent of technology, tax saving has been simplified in many ways and you can buy an insurance online at your ease. Before, buying an insurance make sure that you plan your finances and saving money is the first step towards financial planning. Apart from this, tax saving also plays an important role in meeting short-term and long-term financial goals. It not just reduces the tax liability but also helps in saving for several other goals that one has set at different stages of life. For an effective tax planning, you need to begin your financial planning at the beginning of the financial year.

Unit linked insurance plan, also known as ULIP is considered as one of the best tax-saving options as it provides the dual benefits of both insurance and investment. A small amount of money goes towards your premium while the remaining amount is invested in mutual funds. This plan is an ideal amalgamation of great returns, best protection, and maximum tax savings. It offers tax exemption under Section 80C and Section 10D of the Income Tax Act, 1961. In ULIP, you can get tax benefits at different stages such as while making premium payments, debt or equity switches or availing maturity benefits. In addition to this, death benefits are also tax free under the policy.

ULIPs prove to be an ideal option when it comes to investing for your long-term financial goals which includes child education/marriage, retirement etc. Also, this long-term investment product gives investors the flexibility to switch in accordance to their financial goals.

Besides, a few reasons that shows why ULIPs are one of the best tax saving investment options, take a look -

  • It helps in goal-centric planning - ULIPs have a minimum lock-in period of 5 years which helps policyholders to do goal-centric financial planning. Thus, one can invest in ULIPs to plan future financial goals such as marriage, child’s education, house purchase, etc. You are allowed to make partial withdrawals only after the end of the lock-in period.
  • Top-up your investments - ULIPs also allow you to invest surplus cash through top-up. In simple terms, the top-up facility helps policyholders to invest extra money in the policy. And these top-ups are eligible for deduction as well as exemption under section 80C of the Income Tax Act.
  • Tax-free withdrawals - Death benefits are also available under the policy. ULIPs also offer great tax benefits on withdrawals that can occur in certain cases such as partial withdrawal, maturity of the policy, death of the policyholder. Upon maturity, the policyholder gets an assured benefit which is exempt to tax under section 10D of the Income Tax Act, 1961.
  • Tax deduction on premium paid - In case of ULIPs, the insured person enjoys the benefit of tax exemption as per Section 80C of the Income Tax Act, 1961 on the amount of premiums paid. This means the premiums paid by you for your ULIP is eligible to tax deduction and this limit goes up to 1.5 Lakh. The money invested in ULIPs is further invested in funds such as equity, debts, and money market instruments.

On the whole, it’s a wise decision to invest in ULIP. As a combination product like ULIP allows you to enjoy several benefits like tax savings, life cover and guaranteed returns with minimum risks. So, if you are planning for an ULIP investment, then choose to go with Canara HSBC Life Insurance as they provide the best ULIP that offers life cover along with additional investment options like terminal illness, accidental/death benefits as per your needs. Invest 4G plan is a comprehensive Unit Linked Insurance Plan that not only offer flexible premium payment option but gives you an option to invest your money in 7 different funds and 4 portfolio strategies at a minimum charge with mortality return benefit.

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Annual Income (In Lacs)


In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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