No Tax on ULIP Surrender Value after 5 Years

I have been paying premiums on the Birla Sun Life Dream Plan from September 2009 with the annual premium at ₹25000 and as of now have paid premia for 5 years. The payment mode is quarterly and the last due paid on June 2014. As ULIPs are not doing well, could you please tell me if I should surrender the policy or need to continue? If surrender will the maturity amount be taxable? Currently I am in the 20% tax bracket.
Thanks in advance for your valuable assistance.
- Hazarath Kambala

The high charges under ULIPs lead to poor performance from such plans. If you look at the charges for this ULIP, there is a 5 percent Premium Allocation charge, 1.25 percent Fund Management charge, ₹25 per month Policy Administration charge as well as mortality charges which dent the returns generated by the fund. These are the charges for 6th policy year. You have already borne charges higher than these during first five policy years. We recommend that you surrender this plan. As you have completed five years, there will be no surrender charge and the surrender value will also be tax free. The surrender value of ULIP is otherwise added to your income and taxed as per applicable slab rate if surrendered before five policy years.

This article was originally published on November 05, 2014.