ULIP vs Traditional Insurance — Tax Rules Every Investor Should Know

Both ULIPs and traditional insurance policies offer tax advantages — but the conditions differ. Here’s a practical comparison to help you plan smarter:

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🔹 ULIP – Tax Treatment

✔ Premium eligible for deduction under Sec 80C (up to ₹1.5 lakh)
✔ Death benefit — fully tax-free

Maturity/Surrender:
✅ Tax-free if total ULIP premiums ≤ ₹2.5 lakh per year
❌ If premiums exceed ₹2.5 lakh → gains taxed as LTCG @ 12.5%

✔ Switching between ULIP funds — not taxable
✔ Lock-in period — 5 years

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🔹 Traditional Insurance Plan – Tax Treatment

✔ Premium eligible under Sec 80C (up to ₹1.5 lakh)
✔ Death benefit — fully tax-free

Maturity/Survival Benefit:
✅ Tax-free if annual premium ≤ 10% of sum assured
❌ Otherwise taxable as income

⚠ TDS @ 2% may apply if taxable payout exceeds ₹1 lakh

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📌 Key Difference

• ULIP → premium cap rule (₹2.5 lakh)
• Traditional plan → sum assured ratio rule (10%)
• ULIP gains taxed as capital gains
• Traditional payouts taxed as income if non-exempt

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💡 Planning Insight

Insurance tax benefits depend on structure — not just product choice. Evaluate premium ratios and long-term intent before investing.

Smart structuring today prevents tax surprises tomorrow.

#TaxPlanning #ULIP #Insurance #IncomeTax #WealthPlanning