Everyone wants to make money and live a luxurious life, and the quickest way to achieve that goal is by investing in market shares. Sadly, market investments are not tax deductible, which means that when your money works for you, you also end up paying a huge sum of it in taxes.
But it is not all bad news.
Life insurance providers have an outstanding solution to this sticky problem. They came up with the Unit-Linked Insurance Plans, commonly known as ULIPs. These incredible investment opportunities offer two different benefits for smarter financial planning.
What are ULIPs?
The unit-linked insurance plans are policies that allow you to secure the future of your loved ones and help you earn money during the course of your life.
ULIPs are essentially life insurance policies. You have the option to select from a variety of plans that offer varying sum assured. You must choose the tenure of your ULIP and make regular payments of the premium amount agreed upon by you and your insurance provider. In case of an unfortunate demise during the tenure of your plan, the insurance provider pays your beneficiaries, be they your family, such as parents, spouse, or children, or other people in your life that you choose to take care of after you are gone.
But that’s not all.
ULIPs also provide maturity benefits and the option to invest in the market with the help of your insurance provider. Firstly, the maturity benefit kicks in if you survive the tenure of your policy. The insurance provider refunds your premium as agreed upon in your ULIP contract.
Secondly, you have a number of viable investment options for your premium. The insurance provider picks stock options that you can monitor and choose based on your risk appetite. You can choose low-risk investments or high-risk investments. You can even mix it up to reduce the risk factor and balance high and low-risk investment options while still making good money from the premiums you pay.
The insurance provider allocates part of your premiums into the market where your money works so that you can make more money. You can withdraw this sum periodically in a lump sum amount or let it grow and withdraw in small bursts of cash.
How can you use the ULIP calculator to make more money?
A ULIP calculator is a smart tool that enables you to have realistic expectations from your investments. Here’s how you can use it to make money smartly:
- First, you must choose your sum assured, tenure of policy, and how much money you would like to make from your ULIPs.
- Next, you need to feed all the details along with your age into the ULIP calculator. This incredible financial tool spits out the possible premium that you need to pay in order to make money.
- If the rate of premium seems too high, then you need to reduce the return on investment to a more realistic number. This will help reduce your rate of premium as well.
- The ULIP calculator factors in the markets in which you want to invest. The higher your investments in market-linked instruments, the lower your rate of premium. Similarly, if you invest most or all your money in risk-free instruments, then you need to pay more premium.
- Determine your risk appetite. The ULIP calculator can help you see in real-time how much money you need to invest and how it oscillates between risk-free and market-linked instruments. Therefore, the more risk you are willing to take, the lower your premium rate will be.
- Another important factor is the tenure of your policy. The longer the tenure of your ULIP, the lesser the rate of premium.
- And of course, the goal you set, i.e., the amount of money you want to make also affects your rate of premium.
Based on these factors, you can use the ULIP calculator to set a realistic goal for how much you want to earn and for how long a period you want to achieve this goal. You can toggle between risk-free investments and market-linked investments based on your risk appetite to determine a comfortable sum of premiums to pay.
What are ULIP Tax Benefits?
Apart from being incredible options for investing in the market, ULIPs also have certain tax benefits. Here are some taxation laws to consider when toggling on the ULIP calculator:
- If the rate of premium is below 10% of your Sum assured, then you can claim tax benefits under Section 10 (10D). Had you purchased your ULIPs before April 2012, the rate of premium would have to be less than 20% of the sum assured.
- If your return on investment from ULIPs is more than INR 1 lac, you should try to choose from equity instead of debt funds. In the case of equity investments, if the earnings, i.e., return on investment, is more than INR 1 lac, then you will need to pay taxes of 10% on LTCG, commonly known as Long-term Capital Gains. For investment in debt or mixed funds, if you make more than INR 1 lac from your non-equity return on investments, then you will need to pay 20% on Long Term Capital Gains.
- If the total value of your premiums from multiple ULIPs is more than INR 2.5 lacs, then you won’t receive any ULIP tax benefits at all.
- The best part is, that if you survive the tenure of your ULIPs, then the maturity benefit is exempt from taxes under Section 10 (10D).
Navigating ULIP tax benefits can be tricky if you want to make more money. However, knowing the applicable laws and amendments now, you can choose premium rates and returns on your ULIP investments smartly using a ULIP calculator.
Conclusion
ULIPs are excellent financial instruments to help grow your money. However, they are not the only basket in which to put all your eggs. You can use a ULIP calculator to determine a way to reach part of your financial goal while earning huge benefits.
Based on what you know now about the ULIP tax benefits, you can choose rates of annual premium below 10% of the sum assured and save on taxes. You can also use the ULIP calculator to determine more realistic expectations and balance your risk-free and market-linked investments to make more money with lesser premiums paid.
