ULIPS : Minimum Sum Assured : Taxability

ULIP is an investment with policy cover. The investment in ULIP is eligible for income tax deduction u/s 80C of the I-T Act. There are only two aspects which brings confusion in investors’ mind. Firstly, what is minimum sum assured for investment in ULIP. Secondly, what is the tax incidence on the maturity proceeds of this policy.

Recent notification from IRDA has made ULIPs uniform across all age groups. According to the notification issued by the Insurance Regulatory and Development Authority of India (IRDAI), the minimum sum assured for buying ULIP for people below 45 years of age has been reduced from 10 times to 7 times the annual premium paid. Now, even if you are below the age of 45, you can buy a ULIP with a minimum sum assured of seven times the annual premium as against an earlier minimum sum assured of ten times.

Earlier, only people over 45 years of age were eligible to buy ULIPs with sum assured less than 10 times of annual premium. In effect, this notification has made ULIPs uniform across all age groups.

However, you must remember that because maturity value of the policy in case of sum assured less than 10 times of the premium paid is taxable, therefore post-tax return on maturity will be reduced to the extent of tax paid.

The payout in case of death during the policy term is tax-exempt even in cases where the sum assured is less than 10 times of the premium paid.

Consequently, the post-tax return of policy on the death of the insured is the same as pre-tax return.