June 14, 2024

Comparing ULIP Tax Benefits: Analyzing ULIPs Against Other Investment Options

Have you ever looked at an investment option and wondered how taxation works? Well, you are not alone today. We will focus on Unit-Linked Insurance plans and their tax benefits compared to other financial investment choices.


A Breakdown of The Taxability of ULIPs:

ULIPs merge life insurance advantages with investment prospects. A segment of your payment in it serves for insurance coverage, while the remainder is invested in shares, debt equity, and various funds. Now, let’s explore its tax implications.

  • Tax deduction on the premiums 

Similar to other investments, you can claim a deduction of up to ₹1.5 lakhs per year for ULIP premium payments. This amount is exempted under section 80C of the Income Tax Act, reducing your taxable income.

  • Tax-free maturity 

When an investor keeps the ULIP for over 5 years, and the death benefit is below 10 times the premium paid, the maturity amount becomes exempt from taxes.

Comparing the Taxability of ULIPs with Other Investments 

For a fair assessment, we must compare the taxability of ULIPs against those of other investment mediums:

  • Mutual funds 

Mutual funds are purely an investment option that allows you to invest in stocks and bonds. They offer tax benefits, but only on the condition that you invest in equity-linked savings schemes. Mutual funds are also exempted under section 80C, but unlike ULIPs, they do not include life insurance coverage.

Choosing an investment option depends on you. In ULIPs, the maturity is tax-free. In equity-linked savings schemes, the returns are higher because they have lower premiums.

  • Traditional life insurance 

This policy provides life insurance coverage for the whole life, but unlike traditional life insurance policies, it does not include an investment component. Premiums are also not tax-deductible, and the maturity benefit might be taxable, depending on the policy. ULIPs offer tax-free maturity, making them more tax-efficient in this case.

  • Retirement savings schemes

Investment options like PPF (public provident fund) and NPS (national pension scheme) are popular in retirement planning. It offers tax deductions in the contributions and offers tax-free maturity under certain conditions.

Both ULIP and retirement savings schemes offer tax benefits and are tax-free in the times of maturity.

Key Takeaways From All The Investment Options

A tax benefit is an important component, but it is just one part of the overall mix. Let’s understand the other points to consider while choosing an investment option:

  • Your investment goal

Are you investing in your child’s education, retirement, or something else?

  • Risk tolerance 

How comfortable are you with market fluctuations? ULIPs are investment-linked plans, so the returns might be subject to market risk. 

  • Investment horizon 

How long can you invest? ULIPs generally have 5 years in the lock-in period.

  • Talk to a financial investor 

ULIPs can be a good option, but they’re not for everyone. A financial advisor can help you understand the details and choose the investment that best suits your needs and risk profile. Remember, tax rules can change, so consult a professional for the latest information.


By understanding the taxability of ULIPs compared to other options, you can make informed investment decisions. Remember, the best investment is the one that aligns with your goals and keeps your taxes in check!         

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