Seven ways to earn tax free income

6 Revive your forgotten ulip

In many ways, a Ulip is like a smart phone. It's costly and many people have bought one, but only a few understand and use all its features. Most of us have Ulips in our portfolios and many of us have stopped paying the premium. If you are part of this crowd, you can use your Ulip to earn tax-free income effectively. Pay all the pending premiums at one go. However, the policy should not have lapsed due to non-payment of premium. "As long as the policy is within the stipulated reinstatement period, the policyholder has the flexibility to pay all the pending premiums at one go and revive the policy," says TR Ramachandran, CEO and managing director of Aviva India.

 

Watch out for the charges payable on such premiums when you do so. In some Ulips, the charges are quite high. It won't help if you end up paying a premium allocation charge of 4-5% in your attempt to save tax. More importantly, don't invest the premium in equity funds. A bond fund is a better option at this juncture. Bond funds from leading insurance companies have given good returns in recent years (see graphic). The investors who don't have any pending premiums can use the top-up facility offered by Ulips. They can invest more than the annual premium in the Ulip. Some Ulips have a limit to how much you can invest this way. Others offer a proportionate risk cover as well, which could marginally pare the returns for the investor. Your top-up investment will have a lockin period of 3-5 years, after which it can be withdrawn. If the policy has a healthy corpus, you can withdraw even before that. "Withdrawals from a Ulip are tax-free if the stipulation of 10 times the insurance cover has been met," says Binay Agarwala, EVP and head of products, risk management & corporate strategy, ICICI Prudential Life Insurance.
 

Source : articles.economictimes.indiatimes.com

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