Unit-linked insurance policies (ULIPs) are plans that combine the benefit of both insurance and investment under a single policy. With the Union Budget 2018 imposing an income tax on long-term capital gains from mutual funds, ULIPs have become a hot property among tax experts. ULIPs are offered by almost all the top life insurance companies in the market. Most people invest in ULIPs on a long-term basis to get good returns from their funds. Let’s take a brief look at different attributes of ULIPs and how they can help in tax saving.
ULIPs are investment-oriented life insurance covers that offer both insurance and investment benefits to policyholders. A portion of the premium amount invested by the policyholder is invested in a life insurance plan, while the other portion is invested in various investment funds. Insurers provide different fund options for their customers. Customers are allowed to switch from one fund to another based on their risk tolerance. The returns generated from a ULIP are dependent on the performance of the fund in the market. Though there is a potential for high returns, ULIP investments are subject to market risks. Also, there are no guaranteed maturity returns available, unlike endowment plans.
If you are searching for a ULIP to invest, you must consider the following factors before you proceed with the process:
Similar to other life insurance investments, various tax benefits are also available for ULIP investments. Income tax benefits are available for both investments and maturity returns. Some of the tax benefits available with ULIPs are given as follows:
ULIPs can function as effective wealth creation and tax-saving tools if they are used wisely. Before you start with your ULIP investments, make sure you read the policy document carefully and understand the terms and conditions. Also, it is necessary to choose the funds according to your risk preference. If you wish to have minimal risk, a conservative approach in the form of debt fund investment can be helpful. The different types of tax benefits available with ULIPs also make them worthy of your consideration when it comes to financial planning.
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