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The Unit Linked Insurance Plans (ULIPs) have emerged as one of the best investment tools for new-age investors. Apart from offering the dual benefits of wealth accumulation and life insurance protection, it provides substantial tax benefits. Continue reading to know what are ULIPs, how they work, ULIP tax benefits, and how it helps you in your retirement planning.

As mentioned, the Unit Linked Insurance Plans (ULIPs) are unique life insurance plans that combine the benefits of life insurance and investment into one. A part of the premium paid towards a ULIP is used to provide life insurance cover to the policyholder, and the remaining amount is invested in the funds of their choice to generate wealth.

Various life insurance companies in India offer ULIPs with a lock-in period of three to five years. You can choose the plan option, premium payment mode, and fund portfolio as per your investment profile. You can also switch your ULIP portfolio between debt and equity funds based on your risk appetite.
Tax benefits on ULIPs

Tax-savings instruments are classified into three types:
1. Exempt-Exempt-Exempt (EEE)

2. Exempt- Exempt- Taxable (EET)

3. Exempt- Taxable- Exempt (ETE)

ULIPs belong to the EEE category, which is usually applicable for long-term investment avenues, such as Public Provident Fund (PPF), National Pension Scheme (NPS), and Senior Citizens Savings Scheme (SCSS).
The first E in EEE means that the investments made towards a ULIP are available for tax exemptions. You can deduct the premium paid for ULIPs from your annual income while calculating your income tax.
The second E means that the interests earned from your investments in ULIPs are also available for tax deductions. Whereas the third E means that there is no taxability of ULIP on surrender, and the amount received on death or maturity is eligible for tax exemption. 
Below are two sections of the Income Tax Act under which you can avail of tax benefits by investing in ULIPs:· 

ULIP tax benefits under Section 80C
The premiums paid by the policyholders towards ULIPs are available for tax exemptions under section 80C. The maximum deduction you can avail of under this section is ?1.5 lakh. However, these deductions are applicable only if the yearly premium of the ULIP is less than 10% of its sum assured.
ULIP tax benefits under Section 10 (10D)
The maturity amount or death benefits received by the policyholders (or their nominee) under ULIPs are available for tax exemption under section 10 (10D). There is no maximum limit on the deduction you can avail of under this section. 
Why should you invest in ULIPs?
Below are the reasons you should invest in a ULIP:
Life cover
The primary role of ULIPs is to provide life insurance cover to the policyholders. It offers financial security to their family members and other dependents. It means that in case of your untimely death, a ULIP plan would help your loved ones survive even without you.
Long-term financial goals
Apart from providing a life insurance cover to the policyholder, a ULIP also helps them accumulate wealth for their long-term financial goals. Hence, you can invest in a ULIP to make regular savings and redeem your investments anytime after the end of the lock-in period.
Exposure to equity market
By exposing your investments to the equity market, ULIPs allow you to gain inflation-beating returns on them. In most cases, the returns provided by ULIPs are higher than traditional investment avenues, such as Fixed Deposits, recurring bank accounts, etc.
Income tax benefits
You can also avail of ULIP tax exemptions under various sections of the Income Tax, 1961. Read on to know more about the tax benefits you can avail of by investing in ULIPs.