An Investment That Creates Wealth and Saves Tax

If you are looking for an investment that creates wealth and saves tax, look no further. The unique feature of the ULIP is that they greatly reduce the risk of capital erosion during old age, thereby ensuring that your corpus remains intact even after your retirement.

An ultra safe investment with guaranteed tax benefits, ULIPs invest your capital in equity or debt schemes. Offering flexible inflows into ULIP accounts to suit your requirement, you can withdraw the annual premium as well as any accrual made at any time.

Not only do you get life cover in addition to investment inequities, but also save tax on the premium that you pay. Let’s take a look at the various tax benefits and wealth generation features of Unit Linked Insurance Plans that make them a preferred mode of investment in India.

How does ULIP Help You Save Taxes?

Any investment in life requires careful thinking, as it involves your hard-earned money. It pays to carefully calculate the appropriate amount of money to save for personal objectives. You should always calculate the appropriate life cover to fulfil your objectives.

ULIP investment is valuable, but you have to find a way to ensure that it doesn’t affect your income. As a policyholder, you’re eligible for certain tax benefits. ULIPs can give you tax benefits like service tax which is paid by the insurer on behalf of the insured.

Here’s how ULIP provides you tax benefits – The two provisions of the Indian Income Tax Act that are relevant for ULIP tax benefits are section 80C (life insurance premium is tax-deductible) and section 80CCC (amount paid towards ULIP plans is tax-exempt).

While you could invest a higher amount, the total tax exemption allowed for ULIPs is capped at 1.5 lacs per annum. On the other hand, if your liability is Rs. 1.5 lacs and you have a policy with a lower sum assured, say Rs. 15 lacs, only up to 10% can be used in one financial year for tax exemption.

If you pay an annual premium of Rs. 3 lacs in a policy with a sum assured of Rs. 15 lacs, you can save up to Rs. 1.5 lacs in taxes, provided the policy is valid for at least five years. If you stop paying premiums for your ULIP, your tax benefit will be withdrawn.

How ULIP Helps You Generate Wealth

1. Inculcates Savings Habit

Even with a short-term investment, ULIP funds come with a lock-in period of five years. This instils the discipline of saving money from early on. If you withdraw the money before time, you are levied with certain charges in your ULIP policy.

2. Exceptional Flexibility

Flexibility is among the prominent features of ULIP. The policyholder can change investment funds at any time. This helps investors meet urgent financial needs. The ability to adjust your contributions means that you won’t lock yourself into funds that are performing poorly.

3. Capital Gains from Market

Investors can choose from a variety of funds depending on their risk profiles and return expectations. Those wanting to invest for the long term should only invest in equity funds through ULIPs because they are known to generate considerable returns in the long term.

4. Personalized Fund Allotment

As there is no single formula to master the art of investment, you need to modify your investment strategy to fit your specific situation. You should review your current level of financial stability and evaluate how much risk you can handle, which is possible with ULIPs.

5. Offers Compounding Benefits

The reason why wealth is concentrated in the hands of a few people is that they made an effort to purchase investments that would return money over time. Invest to benefit from compounding. If you have a long investment horizon, you should invest in a ULIP.

6. Provides Life Security

ULIPs work like life insurance, but they earn you some returns. As such, if you’re looking for a single policy that can both protect your family and earn you money, then ULIPs are the way to go. If the policyholder passes away the insurer will give a death benefit to the nominees.

Best Tax Saving Plans Available in India

1. Canara HSBC Oriental Bank of Commerce – Invest 4G Plan

This plan is a non-participating product, allowing you to customize it as per your goals and changing requirements. With an unmatched combination of Portfolio Management Options, this plan gives you complete control over your savings and insurance needs. Systematic Withdrawal Option allows you to create an additional income stream during the policy term under this plan.

2. AEGON Life iMaximize Insurance Plan

The Aegon Life iMaximize ULIP plan offers two different payment options – limited and regular for paying premiums towards the policy. Moreover, you don’t have to worry about premium allocation charges under this Unit Linked Insurance plan.

With this plan, you can choose to invest in three different fund options namely debt fund, blue-chip fund, and secure fund. The insured is also assured to gain the total fund value in form of the maturity benefit under the policy terms.

The plan is also eligible for tax benefits as per the mandates of the Income Tax Act of India under sections 80C and 10(10D).

3. Aviva Life Bond Advantage Plan

Aviva Life Bond Advantage is a single premium unit-linked insurance plan (ULIP), which means that if the insured dies within the policy term, the nominee would receive the higher sum assured or the fund value.

You will receive the Fund Value as Death Benefit only if the insured dies within the policy tenure. Otherwise, you will receive Fund Value as Maturity Benefit. The plan offers an Accidental Death Benefit rider. Loyalty additions are provided after 10 policy years.

Final Words

This article has explained how a ULIP can help you save on taxes and generate wealth. It can also offer a regular income, which is a great way to secure your future. If you’re looking for an investment that will give you long-term returns, ULIPs are a good option for you.