Should You Still Invest in ULIPs After the New Taxation under Budget 2021?

Several financial experts believe that investments should begin early on to meet your long-term financial aspirations. In achieving this objective, buying a ULIP plan (Unit Linked Insurance Plan) can be greatly beneficial. A ULIP policy is especially suitable for individuals with long-term financial commitments such as planning for retirement, a child’s education, etc. A ULIP plan offers the dual benefit of savings and protection. You can use a ULIP calculator to determine the premium amount and ULIP plan returns. As it combines insurance with investment, policyholders need to review the performance of their ULIP share price over the long run. Those who fear investments due to market volatility can ease their concerns as ULIP funds rarely disappoint in the long run.

What is ULIP?

ULIP plan is a multifaceted product provided by insurance companies. It combines insurance coverage with investment in a single offering. Policyholders need to make regular payments in the form of premiums (similar to insurance). A part of the ULIP funds is used to provide insurance coverage, and the balance is pooled with the assets from other policyholders and invested in equity and debt instruments (as per the investors choice). Online tools such as a ULIP calculator can be used to compare your ULIP policy

Unique Features of ULIP

ULIP insurance plans are packed with a variety of attractive features, including security against future risks, tax benefits, and maximising the financial corpus. These combined benefits are what make ULIP insurance plans a popular choice among novice as well as seasoned investors. Beginners in investment can explore online ULIP plans in India to invest in top-performing ULIP funds. Some key features of ULIP that give it an additional edge over other investment options are:

• Dual Benefit: ULIP insurance provides dual benefits of investment with a life cover. The ULIP plan of Edelweiss Tokio offers numerous benefits and acknowledges your future financial needs be it retirement planning or your child’s education.  
• Flexibility: ULIPs provide the option of switching between different funds. One can also partially withdraw from the fund subject to certain charges and conditions. However, it is important to be aware of the ULIP share price to track your investments and ensure you are invested in top-performing ULIP funds. 
• Transparency: Another important feature is that it is a transparent financial product. Unlike traditional plans where details about the investments are not revealed to the policyholder, ULIP plan charges levied are properly disclosed to policyholders.
• Liquidity: ULIP policy is a fairly liquid investment product allowing partial withdrawal of money to meet emergency requirements. Policyholders can liquidate their ULIP plan post the five years mandatory lock-in period via the surrender option.    

Tax Benefits of ULIP Insurance

Aside from the aforementioned benefits, ULIP insurance plans are a great tax-saving investment. ULIPs belong to the Exempt-Exempt-Exempt category for tax-saving. This means that the part of your annual income invested in a ULIP is tax-deductible. The interest earned on your ULIP plan is exempt from taxes, as is the income or the maturity amount of the investment when withdrawn. Let us examine these exemptions in greater detail:

• Section 80C of the Indian Income Tax Act, 1961: This is the most popular section for saving on income tax. Under Section 80C of the Income Tax Act, 1961, the premium paid for a ULIP yearly is exempt from tax for up to ₹1,50,000.
• Section 10(10D) of the Indian Income Tax Act, 1961: As per this section, the amount of sum assured and the bonus paid on the maturity, the surrender of the policy, or death of the insured member, are free from taxes subject to certain conditions. 

Tax Revision for ULIPs Based on Finance Bill 2021

The Union Finance Minister Nirmala Sitharaman proposed revisions for taxation on ULIPs during the 2021 Budget. According to the 2021 Budget, there would be a rollback of tax exemption on maturity proceeds available to ULIPs under section 10(10D) of the Income-tax Act, 1961:

• ULIP policies, bought on or after 1st February 2021, where the unit term insurance premium paid is more than ₹2,50,000, would attract capital gains tax. 
• Individuals holding multiple ULIPs with an aggregate premium over ₹2,50,000 will have to pay tax on the proceeds.

ULIPs are Still an Attractive Investment

As the modified tax proposal imparts restrictions on the treatment of ULIPs, the next concern that investors are faced with is whether a ULIP remains an enticing investment tool. However, upon careful analysis, ULIPs remain an attractive investment option. Here are the following reasons why:

• Under Section 80C of the Income Tax Act, ULIP premiums still enjoy a tax deduction benefit for up to ₹1,50,000.
• Under Section 10(10D), if your annual premium remains below ₹2,50,000, you would continue to get a tax-free return.
• The aforementioned tax slots make it sufficient for a large section of investors to achieve their long-term financial goals such as marriage or children’s education.
• A ULIP plan with a premium below ₹2,50,000 along with those with higher a premium will give a tax-free return to the beneficiary in case of the unfortunate demise of the investor.
• For investors who are new to equity investment and are looking for a consolidated and structured financial product, ULIPs are simpler to understand and convenient to invest in.
• The online ULIP plans in India have undergone a significant transformation with respect to administrative costs, so they remain competitive with mutual funds.
• Although experts encourage pairing term insurance with equity mutual funds, this option may not work well with novice investors as they might end up making incorrect investments. On the contrary, the limited fund options for ULIPs make fund selection simpler, minimising error on the part of the investors. 
• If the investment is within ₹2,50,000, ULIPs remain an attractive proposal. To beat the post-tax net return from a ULIP, an equity mutual fund would have to give a much higher net return as an equity mutual fund investor will have to pay a 10% LTCG tax on the LTCG of above ₹1,00,000.

Wealth Secure+ by Edelweiss Tokio Life Insurance

Edelweiss Tokio offers Wealth Secure+, an online ULIP that helps investors grow their wealth. The plan offers multiple benefits, such as:

• Attractive boosts to your earnings with Loyalty, Maturity and Booster Additions.
• Seamless choice between short-term and long-term investment tenure.
• Life cover up to 100 years of age.
• Easy investments with plans starting at ₹1000 per month.
• Ability to add your spouse to the plan with the Joint Cover option.
• Add children to the same plan with the Child option.
• You can add yearly bonuses or additional income to the plan with top-up premiums.
• The Systematic Withdrawal Plan ensures a secured post-retirement life.
• Multiple choices of funds based on financial goals and risk profile. Also, get unlimited free-of-cost switches between funds.
• Enjoy tax benefits as per prevailing norms under Section 80C and Section 10(10D) of the Income Tax Act.

Conclusion

In conclusion, every investor needs to evaluate investing in ULIPs before making the final decision as ULIPs are an enticing investment, especially for small investors.

Edelweiss Tokio Life Insurance offers a seamless and feature-rich ULIP plan – Wealth Secure+ to help you secure your dreams and earn tax benefits. For more information, get in touch with us today!

 

Yashwant Naik - Lifestyle and BFSI Writer

Yashwant is a freelance content writer, interested in a wide range of spheres from yoga and personal finance to cooking. He is also an aspiring yoga enthusiast who is trying to find some balance and harmony in life through a healthy lifestyle.