Should You Invest in ULIPs After the Tax Amendments in Budget 2021?

Should You Invest in ULIPs After the Tax Amendments in Budget 2021?

The tax amendments in Budget 2021 impacted one of the biggest USPs of ULIP, which made them a highly tax-efficient product for equity investments. After the recent changes, should you still consider investing in ULIPs? Read this post to find out. 

Unit Linked Insurance Plans (ULIPs) are one of the most popular investment options in India. The combination of life insurance and investment, along with the significant tax benefit under Section 10(10D), made them a preferred choice, especially for individuals from the higher income tax bracket. 

But according to the amendments in Budget 2021, the maturity proceeds of ULIPs investments with an annual premium of above Rs. 2.5 lakhs will not be tax-exempt under Section 10(10D). The new rules are only applicable to ULIPs purchased on or after 1st February 2021. 

With these new amendments in place, should investors still consider investing in ULIPs? What are the reasons that still make ULIPs one of the best long-term investment options? Take a look-

  1. Combination of Life Insurance and Investment

A significant advantage of ULIPs is the combination of life insurance and investment. A part of the premium you pay is used for purchasing life insurance cover, and the remaining is invested in a fund of your choice. 

A ULIP helps you build a safety net for your dependents in case of your unfortunate demise while also enabling you to grow your wealth. You receive the maturity benefits on surviving the policy tenure, or your policy beneficiary can receive the sum assured on your demise. 

  1. Smarter Way to Invest in Equity

Equity continues to be the most rewarding asset class for long-term investment. Through a ULIP, you can invest in an equity fund professionally managed by an experienced team. Compared to direct stock investments, ULIPs are a safer and smarter way to invest in equity markets. 

You can also switch between the fund options offered by the insurance provider to ensure that your investment correctly matches your changing objectives and risk appetite. Some of the plans, like the HDFC Life ULIP Plan, offers as many as ten different fund options with unlimited free switching option to help you maximize your investment. 

  1. ULIPs are Still Highly Tax-Efficient

As ULIP is primarily a life insurance product, premiums of up to Rs. 1.5 lakh in a financial year are eligible for tax deductions under Section 80C. Even the death benefits are tax-exempt under Section 10(10D).

Also, for policies purchased on or after 1st February 2021 where the annual premiums are not above Rs. 2.5 lakhs, ULIPs continue to be a highly tax-efficient method to invest in the equity market.   

  1. Steady Post-Retirement Income

Some of the top insurers in the country also offer systematic withdrawal option with their ULIPs. With this option, you can withdraw a fixed amount from your ULIP portfolio at regular intervals rather than withdrawing a lump sum amount on maturity. 

The fixed amount can work as a steady source of income in your retirement years so that you can live a financially secure post-retirement life. 

ULIPs for Enhanced Protection and Long-Term Wealth Creation

Even after the Budget 2021 amendments, ULIPs continue to be a highly popular insurance cum investment product. Compare the plans offered by top insurers in the country to choose a feature-packed ULIP that best meets your requirements and expectations. 

Consider factors such as the insurer’s reputation, fund performance, claim settlement ratio, and charges involved to make an informed decision. 




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