Everything You Need to Know About ULIP Premiums

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Most young Indians today understand the importance of planning for the future. They start saving and investing right from the time they start earning. Unit-Linked Insurance Plans (ULIPs) have become one of the most popular financial tools in the market. These unique policies offer investment opportunities while providing the financial safety net of life insurance coverage. Every good investment starts with understanding the costs. Let's better understand everything you need to know about your ULIP premium.

Premium Allocation Charges

Premium allocation charges are the fees insurance companies charge the policyholder for investing in a ULIP. These charges are levied on the ULIP premium amount and can vary between insurers. Premium allocation charges are deducted upfront from the premium paid, and the remaining amount gets invested in the fund chosen by the policyholder.

Premium allocation charges typically range between 1% to 4% of the premium amount, depending on the insurance company and the policy terms.

Taxation

ULIPs offer tax benefits to the policyholder under Section 80C# of the Income Tax Act, 1961. The premiums paid towards a ULIP policy are tax-deductible up to a maximum limit of Rs. 1.5 lakh per annum.

Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D) i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

In addition to the above, for policies issued after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

Income from rest of the policies exceeding the mentioned limit will be chargeable as capital gains.

Death proceeds are also exempt from tax for all ULIP plans.

Top-up Premiums

Top-up premiums are additional premiums policyholders can pay towards a ULIP policy after the initial payment. These top-up premiums are invested in the same funds as the regular premiums, allowing policyholders to increase their investment and wealth creation.

Top-up premiums are subject to premium allocation charges. The policyholder can make these payments as and when they wish. The minimum top-up premium amount and the maximum number of top-up premiums allowed vary between insurers and policy terms.

Premium Redirection

Premium redirection is a feature that allows the policyholder to change the allocation of future premiums between different funds in a ULIP policy. Premium redirection helps when policyholders want to invest in other funds due to market conditions, financial goals, or risk appetite.

Premium redirection is a flexible feature that allows the policyholder to switch between funds without surrendering the policy. However, premium redirection is subject to certain restrictions, such as the number of times the policyholder can make changes.

Understanding your ULIP premium and cost helps you make informed investment decisions. Premium allocation charges, taxation, top-up premiums, and premium redirection are some of the crucial features of a ULIP premium that every policyholder should be aware of. You can consult a financial advisor or insurance expert to better understand the terms, charges and benefits of ULIPs before investing. ULIPs provide long-term wealth creation opportunities while securing your family's finances with life coverage. Evaluate all your investment options before selecting a plan based on your investment goals and risk appetite.

Related Articles:

• Investing in ULIP Plans - Things You Must Know
• Complete Comparison of ULIP Plans
• Meaning of Sum Assured in a ULIP

ARN - MC/06/23/2406