Getting Familiar With Ulip Premiums

Many young Indians today grasp the significance of preparing for the future. They initiate saving and investing right from when they begin earning. Unit-Linked Insurance Plans (ULIPs) have emerged as a highly favored financial tool. These distinct policies offer chances for investment while ensuring the safety net of life insurance coverage. Every wise investment starts with grasping the expenses. Let's delve into all you should know about your ULIP premium. 

Charges for Premium Allocation  

Premium allocation charges denote the fees that insurance companies levy on policyholders for investing in a ULIP. These charges are taken from the ULIP premium amount and can differ among insurers. Premium allocation charges are withdrawn upfront from the paid premium, and the remaining sum is invested in the fund chosen by the policyholder. 

Premium allocation charges usually fall between 1% to 4% of the premium amount, contingent on the insurance company and the policy terms. 

Tax Benefits  

ULIPs extend tax advantages to the policyholder under Section 80C# of the Income Tax Act, 1961. The premiums contributed to a ULIP policy are eligible for tax deduction, up to a maximum cap of Rs. 1.5 lakh per year. 

Returns obtained on surrender/partial withdrawal/maturity of a ULIP plan are excused from tax, adhering to provisions outlined in Section 10(10D). This applies if the premium due for any year during the policy period does not surpass 10% of the death sum assured. 

Furthermore, for policies initiated after 1st Feb 2021, tax exemption on maturity proceeds will be applicable if the premium paid in any year towards such matured policies doesn't exceed Rs. 2,50,000. Out of all matured policies in a fiscal year, exemption under section 10(10D) will only apply to policies whose total premium in any year doesn't surpass Rs. 2,50,000/. 

Income from other policies that exceed this specified limit will be subject to capital gains tax. 

Death benefits are also free from tax for all ULIP plans. 

Additional Premiums  

Additional premiums, known as top-ups, are extra amounts that policyholders can contribute to a ULIP policy following the initial payment. These top-up premiums are invested in the same funds as the regular premiums, allowing policyholders to boost their investment and wealth creation. 

Top-up premiums are subject to premium allocation charges. Policyholders can make these payments at their convenience. The minimum top-up premium and the maximum number of top-up premiums allowed may differ among insurers and policy terms. 

Changing Premium Allocation  

Premium redirection is a feature that permits the policyholder to alter the distribution of future premiums among different funds in a ULIP policy. Premium redirection proves useful when policyholders wish to invest in other funds due to market conditions, financial objectives, or risk tolerance. 

Premium redirection is a flexible feature that allows the policyholder to switch between funds without terminating the policy. However, it is subject to certain limitations, such as the frequency of changes permitted. 

Understanding your ULIP premium and expenses empowers you to make well-informed investment choices. Premium allocation charges, tax benefits, top-up premiums, and premium redirection are some of the pivotal aspects of a ULIP premium that every policyholder should grasp. Before investing, seek advice from a financial advisor or insurance expert to gain a deeper understanding of the terms, charges, and advantages of ULIPs. ULIPs offer prospects for long-term wealth creation while safeguarding your family's finances with life coverage. Assess all your investment alternatives before picking a plan in line with your investment objectives and risk tolerance.