What are the minimum and maximum investment in ULIP? Would the Whole Amount Insured in The ULIP Insurance be Invested in the Market?
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What are the minimum and maximum investment in ULIP? Would the Whole Amount Insured in The ULIP Insurance be Invested in the Market?

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  • 16th Mar 2022
  • 244

What are the minimum and maximum investment in ULIP? Would the Whole Amount Insured in The ULIP Insurance be Invested in the Market?

Investing in ULIPs, on one hand, is certainly a wise investment decision to make, but on the other hand, things can be tricky if you are not aware of all the details related to a ULIP policy. One of the most common and equally important query related to ULIP investment is the lower and upper limit of the ULIP plans.

What are the minimum and maximum investment in ULIP?

There is no specific answer to this question. The minimum and maximum amount that one can invest in ULIP policies vary from company to company. However, in general, the lower limit of premium for ULIP investment can be as low as a minimum sum of ₹1500 per month or ₹1,50,000 per year.

Lower Cap = ₹1500/month or ₹1,50,000/year

Also, generally, there is no cap on the premium amount for maximum investment, and the upper cap can be any amount that an individual is capable of paying as per their investment goals and plans.

Upper Cap = No Limit

Other than the upper and lower limits, while planning a ULIP investment strategy, you must note that most ULIP plans have a lock-in period of 5 years, and it is advised that the investors should pay the premiums for the complete term to make the maximum out of ULIP benefits. However, if you break out from the ULIP policy before the lock-in period, you will receive the fund value after certain deductions or surrender charges.

Taxability of ULIP

In the Annual Budget 2021, the Government of India made some amendments to the taxability of ULIP, to prevent its misuse. As per the recent amendments applicable from April 2021 under Section 112A of the Income Tax Act, any return from a ULIP investment where the premium is less than or equal to ₹2,50,000 per annum, is exempted from tax.

However, if the annual premium sum exceeds ₹2,50,000, then the returns are taxable under different provisions of the Income Tax Act related to ULIP. To help you determine the amount correctly, you should consider using a ULIP tax calculator. An ULIP tax calculator will help you in finding tax deductions on higher premiums.

Why to invest in ULIP?

Here’s why you should consider investing in a ULIP plan:

  • Dual benefit of investment and insurance
  • Triple E-benefit (Exempt-Exempt-Exempt). No tax levied for investment, proceeds, and withdrawal
  • Top-up advantage (add extra money)
  • Flexible switching options
  • Structured charges (pre-defined)

In addition, the new ULIP tax treatment has also increased the chance of keeping this investment tool free of scams. Thus, improving its quality and benefits.

So, if you are looking to make investment gains while having the ULIP benefits of insurance, you must be well aware of the taxability of ULIP and carefully read the document related to it, before investing higher amounts in it.

ULIP Benefits

Some of the major benefits that make ULIPs a lucrative investment product includes:

  • Flexibility
  • Transparency
  • Financial goal-based savings
  • Considerable tax benefits on investment
  • Liquidity options

Having understood a great deal about these policies, another concern that raises in most policyholder’s mind is: Would the whole amount insured in the ULIP insurance be invested in the market?

The one-word answer to this question is no! The whole amount insured in the ULIP policy will not be invested in the market. Generally, in the case of any insurance policy, the premium is divided into three different parts:

1.Pure life premium 2.Expenses 3.Amount left to be invested

In the case of ULIP, generally, 1 part is for insurance, while the other part is taken out for investment into the markets, based on the policy guidelines. So, understand the nitty-gritty, weigh pros and cons, and invest in the right plan that helps you achieve your financial goals.

- A Consumer Education Initiative series by Kotak Life

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