Over the next two months, most of us would be filing our tax returns for the financial year 2020-21. This is the time when many realise how they could have done a little more to save a little more money in taxes through different deductions that are available under the Income Tax Act 1961. While the time that has gone cannot be brought back, you can definitely review your tax planning for the current financial year, so you do not find yourself in a similar situation again next year.
In terms of tax saving instruments, life insurance is often at the top of the list for most people[1][2]. However, lately, ULIPs, or Unit Linked Insurance Plans, are emerging as one of the most preferred instruments among the life insurance schemes, according to a survey by Bajaj Allianz Life Insurance[3]. This trend is natural given the fact that ULIP insurance policies offer market-linked wealth creation alongside protection in the same policy. Moreover, since these plans have the option to invest in both equity and fixed income asset classes, they have the potential to deliver good returns over time.
What is a ULIP scheme
ULIP or Unit Linked Insurance Plan is a type of life insurance plan, which offers you, the policyholder, the benefits of both investment and insurance. A ULIP gives you an opportunity of market linked wealth creation while providing you the security of a life insurance cover. Moreover, with ULIPs, you can select the type of fund (with varying degrees of risk-return potential) where you want your premium to be invested.
With the incidence of untimely deaths rising, especially in the times of the Covid-19 pandemic[4], life insurance seems to become a necessity. Buying a life insurance policy takes up financial resources and resources are always limited. What if one could get the protection of life insurance along with market-linked returns? Return on your investment is as critical as achieving long-term life goals like children’s education, buying a dream car, or owning a house for which the investment has been made. A unit-linked insurance plan has the potential to accumulate market-linked wealth to achieve such life goals along while ensuring a fall-back option in case of any unfortunate event.
Tax-benefits that come with ULIPs
Investment in ULIPs offer substantial tax benefits at different stages of the policy. Let’s look at some of the ULIP tax benefits.
Tax benefit on premium:
The benefit of investing in a ULIP is that the entire premium that you pay can be deducted from your taxable salary, up to a limit of Rs 1.5 lakh, under section 80C of the Income Tax Act, 1961 subject to conditions specified therein. If policy is not satisfying the Section 10(10D) conditions, amount of deduction under Section 80C is restricted up to 10% of capital sum assured for policies issued on or after April 1, 2012 and for policies issued before April 1, 2012 amount of deduction is restricted up to 20% of capital sum assured.
Tax benefits on maturity (for ULIPs issued before February 1, 2021):
As per section 10(10D) of the Income Tax Act, 1961, benefits received from ULIPs are tax-free. This is applicable only if the annual premium is less than 10% of the capital sum assured for the policies purchased after April 1, 2012 (for the policies purchased before the said date, it is 20%).
Tax benefit on maturity (for ULIPs issued on or after February 1, 2021):
You invested in the ULIP and saved some tax at the time of making that investment. But what happens when you liquidate your investment after it has matured? The good thing is that ULIPs offer a tax-free maturity amount as per Section 10 (10D) of the Income Tax Act 1961, subject to conditions specified therein and as long as the annual premium does not exceed Rs 2.5 lakh for policies issued after Feb 1, 2021.
Tax-free partial withdrawals
If you wish to withdraw money from your ULIP plan after the five-year lock-in period, you don’t have to pay any taxes on that withdrawal, provided the amount withdrawn is less than or equal to 20 per cent of the sum assured.
Tax-free pay-out in the event of death
In the unfortunate event of the untimely demise of the policy holder, the nominees receive the entire sum assured, or the total value of the fund in which the policyholder had invested, whichever is higher as per the terms and conditions of the policy. As the family deals with the loss of the loved one, at least they do not need to worry about their life goals as the lump sum payment would help in taking care of those. Moreover, the entire pay-out in the event of the death of the policyholder is exempt from any taxes.
Getting the right ULIP policy
So, if you are looking for the right investment vehicle to save some tax in the current fiscal, ULIPs could be the right choice for you. You could choose from the various ULIP plans offered by Bajaj Allianz Life Insurance. The Bajaj Allianz Life Goal Assure - A Unit-linked Non-Participating Life Insurance Plan could be an option that not only offers you a combination of life insurance and investment, along with tax benefits, but also returns the life cover charges on maturity#. If you go with this plan, you can choose from four different investment strategies and eight funds to find the approach that best suits your financial goals and risk appetite.
Not only can you buy their plans from their extensive offline network of 509 branches and over 80,000+ agents (as on 30 June 2021)[5], you can also buy Bajaj Allianz Life plans online from the comfort of your home by logging on to www.bajajallianzlife.com. With a claim settlement ratio of 98.48%~, you could be assured that not only your investment needs, but also your insurance needs would be served efficiently.
References:
[1] https://economictimes.indiatimes.com/wealth/personal-finance-news/life-insurance-most-preferred-investment-for-affluent-indians-survey/articleshow/45890123.cms?from=mdr
[2] https://www.financialexpress.com/money/indians-invest-primarily-in-life-insurance-fds-for-retirement-survey/2110069/
[4] https://www.worldometers.info/coronavirus/
[5] https://www.bajajallianzlife.com/about-us.html
# Return of life cover charges = return of mortality charges (ROMC) which is payable on maturity, provided all due premiums have been paid.
~ Individual Claims Settlement Ratio for FY 2020-2021
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