Ulips post-Budget: Assess suitability, examine costs before investing
Published by Business Standard
Abhishek Kumar's role: Quoted
Abhishek Kumar said high earners gain because capital gains tax on such Ulips is below their slab rate, but pointed out the five-year lock-in and multiple charges, and suggested checking costs and whether the life cover is adequate.
What Abhishek Kumar said
The 2025 Budget said taxable ULIP payouts are capital gains. Who benefits?
High-income earners. Once it was clear that money from a ULIP that does not get the Section 10(10D) exemption would be taxed as capital gains, I pointed out that the capital gains tax rate they would pay on such ULIPs was lower than their income tax slab rate. For someone in a high slab, that difference is meaningful.
What flexibility does a ULIP offer?
A ULIP lets people who want to combine insurance with market-linked investments do both through a single product. During the policy term, you can also move your money between the funds inside the plan according to your preferences, so the underlying mix does not have to stay fixed for the whole term of the policy.
What are the drawbacks of ULIPs?
Liquidity is the main issue. If you realise that a ULIP you bought does not suit you, you cannot exit before the five-year lock-in ends. Many ULIPs also carry several charges, such as policy administration and fund allocation charges, which reduce what policyholders earn overall. People who want to keep their money liquid should avoid ULIPs.
What should I check before buying a ULIP?
Look closely at every charge that applies across the full term of the policy. Then check whether the life cover is enough to leave your dependants a decent sum. ULIPs typically offer cover of about ten times the premium, and that may not be adequate for what your family would actually need.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on insurance
The Union Budget clarified that payouts from unit-linked insurance plans that do not qualify for exemption under Section 10(10D) are taxed as capital gains. The article explains the change, weighs tax-free fund switches and the lock-in against charges and limited flexibility, and lists checks before buying.
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Ulips post-Budget: Assess suitability, examine costs before investing