Want To Know About Taxability of ULIP on surrender? Know These Things

Many years ago, the insurance market was considered to be straightforward with its endowment plans and term insurances. However, the sector has come a long way since then as people are able to buy so much more than a simple life insurance plan. They now have the goodness of both – insurance and investment. That is where ULIP comes in. 

A ULIP plan is also known as a Unit Linked Insurance Plan that provides you with the protection of a life cover and also gives you an opportunity to grow your wealth by investing a part of your premium in debt-equity funds. What makes them better than traditional insurance is that you get the goodness of both investment and insurance in a single plan. As a ULIP investor, you get to invest in market-linked instruments as per your risk tolerance. 

However, just knowingwhat is ULIPmay not be enough as you also need to understand how ULIPs may be better than a pure insurance or investment plan. Let us talk about it in detail. 

How Does A ULIP Work?

The premium you pay towards ULIP plan is used to pay for your life insurance cover, and a portion of it is used to build your wealth. In the initial years of investment, a large part of your premium is used towards managing the policy expenses. 

Once these expenses are paid, the premium is divided into life insurance and investment. Your fund manager will understand your appetite for risk and allocate units for the amount you want to invest. The fund can be equity, debt, or a combination of both. The value of these units will depend on the performance of the funds you choose to invest in. 

For the first 2-3 years, the fund value may be low due to high costs deducted in the first phase. That is why ULIP plans can be consideredas a long-term investment instrument, as you would have to stay invested for at least five years to reap some real benefits. 

ULIP and Tax Benefits

The premiums that you pay for your ULIP plans are eligible for tax deductions u/s 80C up to Rs. 1.5L. In case the policyholder dies within the policy term, the amount received by the nominee will also be tax-free u/s 10(10D). Even the maturity amount paid after the policy maturity is exempted from tax.  

Benefits of ULIP

Here are some of the reasons why you must consider investing in ULIP plan:

  • Choose the investment combination as per your risk tolerance
ULIP lets you choose the fund allocation as per your risk appetite. If you are a low-risk taker, you can choose debt funds, a high-risk taker can opt for equity funds, and moderate risk takers can go for balanced funds. You can also switch between funds as per the market fluctuations. 
  • Flexibility 
Many reputed insurance providers, such as Max Life Insurance, give their investors the flexibility to switch between funds as per the market volatility. This flexibility does not come with other life insurance products or investment instruments. This advantage is uniquely available to ULIP investors.



If you are faced with uncertain times, you can switch to debt funds, and when the market appears to be performing well, you can invest in equity funds. It would be best if you stayed invested in ULIP for at least ten years or more to earn some significantreturns from your investment.

  • Long term investment
ULIP is the perfect investment instrument if you want to want to set aside funds for long term goals, such as buying a car, a house, or even funding a start-up. ULIPs benefit from the power of compounding in the years that you stay invested. 

While it is a good option for long term investment, you can exit the policy even after 5 years and still make some serious gains. Your money grows faster in ULIP rather than keeping it in a savings account or FDs.

  • Life cover
You no longer have to take an additional life insurance policy. ULIP covers you and your loved ones against life’s eventualities by providing you with a comprehensive life cover as part of your policy. 

In case something happens to you during the policy term, the policy beneficiary will either receive the fund value or the death benefit, whichever is higher. You can rest assured that while your wealth is growing, your loved ones are secure, should something happen to you. 

ULIP is one of the most popular investments and insurance products offered by insurance companies. It is a great investment tool that takes care of your long-term and short term needs, giving you the flexibility to invest as per your preference. However, before buy ULIP, be sure to educate yourself about the charges, features, and benefits. Since it is a long-term investment plan, it is best to make an informed decision.

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