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Using ULIPs to Build a Retirement Corpus

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Using ULIPs to Build a Retirement Corpus
August 02, 2021

Every young individual who joins the workforce dreams of building up a significant retirement corpus. Everybody saves as much as possible so they remain independent even after they’ve hung up their work boots. But, savings aren’t enough. To maintain your standard of living even without a regular income, you need to invest and grow your money. One of the best ways to do this is with the help of a Unit-Linked Insurance Plan (ULIP).

ULIPs provide you with more than just a pathway to grow your money. These plans also offer life cover, allowing you to financially protect your loved ones no matter what happens. ULIPs have a unique structure that makes them the ideal financial tool for long-term goals. When it comes to building your retirement corpus, a ULIP could be exactly what you need. Here’s a look at five reasons why you should rely on a ULIP for retirement:

1. Long-Term Wealth Creation

Your ULIP comes with a five-year lock-in period. So, they encourage you to maintain the investment for many years. With these investments, the longer you stay invested, the better it is for you and your corpus. To motivate investors, insurance providers offer bonuses if you remain invested for 10 years or more. The money that you continue to pour into your ULIP regularly will grow substantially. If you’d like to make sure you pay all your investment amounts on time, you can set up an auto-debit system with your bank. By doing this, you can maintain your ULIP with ease. After all, when you’re using a ULIP for retirement, you cannot afford to make any mistakes.

2. Tax-Free Investment

Many people opt for a ULIP pension plan since it falls under the E-E-E or Exempt-Exempt-Exempt category. To put things simply, all the money you put into your ULIP is tax-exempt. So, the money you invest, up to a maximum of INR 1,50,000 per year, gets deducted from your taxable income. The returns you earn on your investments are also tax-free. The life insurance payout that your nominee receives also enjoys the same tax exemption. Finally, ULIPs allow you to make partial withdrawals in certain emergencies. These withdrawals do not attract any taxes either. All the money that goes into or comes out of your ULIP is completely tax-free.

3. Completely Customisable

When you invest in a ULIP, you are in charge of all your investments. You decide the fund allocation and distribution of your funds. You can pick a mix of equity and debt instruments depending on how much time you have to build up your retirement corpus. With a ULIP, you have the unique ability to switch your funds around at any time. Let’s say you purchase a ULIP pension plan in your 20s. You’re still young and can take a few risks. So, you invest the majority of your money in equity funds. As you near the retirement age, you might want to move things around and keep your retirement corpusas safe as possible. You can have your fund manager move things around and invest your money in more debt funds. Few other investment avenues allow you to control your money with as much ease.

4. Easy and Automated Portfolio Management

If you do not follow market trends, you might not want to switch your funds manually. Thankfully, with a ULIP pension plan, you don’t have to. You can provide your fund manager with your retirement corpus goals and give them the liberty to make changes for you. They will switch your money between debt and equity funds as required to maximise the returns on your investment.

5. Financial Stability for Loved Ones

ULIPs famously also provide individuals with life cover. If anything happens to the insured, their loved ones receive a payout of the sum assured amount. Having life cover is crucial while you build up your retirement corpus especially if you’re the only one earning. Your partner’s retirement plans are tied to yours. The payout from the insurance policy can help them manage their funds even after you’re gone.

When it comes to building your retirement corpus, you should not put all your eggs in one basket. While a ULIP pension plan is definitely a step in the right direction, it shouldn’t be your only investment. As a working individual, you should try and minimise your risk by maintaining a diverse investment portfolio. Put money away in other retirement instruments such as the NPS or EPF. Together with your ULIP for retirement, these plans will allow you to enjoy a financially secure retired life.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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