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Renewal of existing ULIP remains a sound financial decision? Find out

In the latest budgetary proposal of removing of tax exemption on ULIPs maturity proceeds, numerous consultants have been saying that continued funding by means of renewals in ULIPs remains a sound financial determination.

Unit Linked Insurance Policies or ULIPs are a complete financial software that gives prospects a component of safety from unexpected circumstances and doubles as an funding product that gives flexibility to develop their wealth primarily based on market situations.

In the latest budgetary proposal of removing of tax exemption on ULIPs maturity proceeds, numerous consultants have been saying that continued funding by means of renewals in ULIPs remains a sound financial determination.

Prashant Tripathy, Managing Director and Chief Executive Officer, Max Life Insurance says, “In the recent Union Budget, the Government has announced that the maturity proceeds of ULIPs with an annual aggregate premium of above Rs 2.5 lakh in any financial year will be liable for capital gains tax.”

He additional provides, “However, the budgetary proposal is only applicable for ULIPs issued after January 31st, 2021. Hence, this does not affect the performance or reduce the importance of the product for policyholders who purchased it before February 1st, 2021, making ULIP an attractive investment plus protection tool to continue to remain invested in.”

What are some of the advantages of persevering with existing insurance policies (issued earlier than 1st Feb’ 21)? 

Industry consultants say, whether or not prospects buy a new ULIP or resolve to resume their existing coverage, most will reap the twin advantages of rising their wealth and defending the longer term of their households.

Apart from that, Tripathy says “policyholders who have purchased ULIPs before February 1st, 2021 can avail of multiple benefits from renewing their existing policies. For instance, the premium paid on the product continues to enjoy the section 80C deduction benefit up to Rs 1.5 lakh per annum, which is available for new ULIP as well.”

Further, if the annual premium remains beneath Rs 2.5 lakh, policyholders will proceed securing tax-free returns underneath part 10(10D). Additionally, the proceeds acquired on demise profit are additionally exempt from tax.

Under part 194DA, earnings proceeds are exempt from TDS, and policyholders shouldn’t have to pay safety transaction tax (STT) on redemption of such ULIPs.

Tripathy provides, “By continuing investing in ULIP, one remains financially protected apart from having a steady growth of Investment over time.” Additionally, it additionally helps defend wealth by providing the pliability to alter the chosen funding funds primarily based on market situations.

What would be the implications on policyholders who proceed with their ULIP coverage?

Experts say, policyholders who’ve bought ULIP earlier than February 1st, 2021 is not going to face any implications on their plans and are free to benefit from the existing tax advantages even upon renewal of existing insurance policies. The modifications introduced through the Union Budget are solely relevant for purchasers who’ve bought or plan to buy a new coverage after January thirty first, 2021.

Tripathy says, “In case, new ULIPs are purchased with an aggregate annual premium higher than Rs 2.5 lakh in any financial year, the returns will no longer be tax-exempt.” However, each ULIP policyholders who pay premiums above and beneath Rs 2.5 lakh can avail of tax-free returns on demise advantages topic to situations talked about underneath part 10(10D).

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