Why you should invest in ULIPs?

ULIPs provide the flexibility of premium payment. You have the option to move your money between equity and debt funds. ULIPs allow you to withdraw a part of your money whenever you need it. You can also choose where to invest, depending on your risk appetite.

Hyderabad: Many people opt for Unit-based Insurance Policies (ULIPs) for long-term investment growth. Although there are schemes like bank fixed deposits and Equity Linked Savings Scheme (ELSS) for tax savings, they prefer ULIPs as they provide many benefits,

ULIP policy: Unit-based Insurance Policies (ULIPs) are the way to go when insurance protection, market access and tax savings are all in one place. Though there are schemes like bank fixed deposits and ELSS for tax savings, many people opt for ULIPs, which allow for investment growth in the long run.

Tax deduction: Section 80C of the Income Tax Act exempts premiums paid to ULIPs up to a limit. In addition, pension‌ plans can be claimed under Section 80CC. The combined limit for these two Sections is Rs 1,50,000. The annual premium paid for the policy should not exceed 10% of the value of the policy.

Partial withdrawal: The lock-in period for ULIPs is five years. The policyholder can then partially withdraw some of these. It should not exceed 20% of the total fund value. For example, if the value of the fund is Rs 2 lakh after five years, up to Rs 40,000 can be taken from it. Insurers are likely to impose a limit on this. It is better to know about this provision before taking a policy.

Maturity: Exemption is applicable under Section 10 (10D) of the Income Tax Act on the maturity of the policy. The annual premium payable on policies taken after April 1, 2012, should be less than 10 per cent of the policy value. For policies taken earlier, the premium should not be less than 20 per cent. Compensation is tax-deductible if the policyholder passes away before the maturity of the policy.

Paying extra: When the annual premium paid for newly taken unit-based insurance policies exceeds Rs 2.5 lakh, no tax is deductible on the income received. Policyholders need to keep this in mind.

Finally, there are other benefits, too, in ULIPs. They allow you to invest in equity and debt. Those who can afford high risk can opt for equity funds and those who can bear moderate risk can opt for debt funds. If you want risk-free investments, you can opt for government securities, fixed income securities and corporate bonds and these can be used to deposit in retirement funds.