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ULIP for Retirement

ULIPs are a great way to save for your retirement. They offer tax benefits, life insurance coverage, and flexibility. Choose a ULIP plan that suits your investment horizon and risk appetite to enjoy a comfortable retirement.

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ULIP for Retirement

Retirement Planning with ULIPs

ULIP for Retirement
July 03, 2023

Table of Content

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Working individuals often worry about saving enough to enjoy a financially secure retirement. You must carefully plan your investment to enjoy your golden years. A Unit-Linked Insurance Plan (ULIP) provides insurance coverage and investment opportunities, helping you secure your retired life with market-linked returns. Let's better understand how ULIPs can help you plan your retirement finances.

Types of ULIP Plans Offered for Retirement

Many insurance companies offer specific ULIP plans to help you secure your retirement. All ULIPs come with a five-year lock-in period, making them the ideal financial tool to plan your long-term finances and retirements. Depending on how long you have to build a corpus, you can choose a ULIP for retirement policy tenure that suits your needs. Additionally, you can look for ULIPs with plan options and fund options that align with your risk appetite and retirement goals.

How Do ULIPs Help in Retirement

Let's see how you can use a ULIP for retirement:

  • Market-Linked Returns

    ULIPs invest in equity, debt or a combination of both, depending on the investor's risk appetite. These market-linked funds help generate higher returns over the long term.

  • Investment Flexibility

    ULIPs offer flexibility in choosing the premium payment term and investment options. Investors can customise their investment portfolio based on their risk appetite and financial goals. To help make informed decisions, you can use a ULIP Calculator to estimate potential returns based on different investment strategies and time horizons.

  • Insurance Coverage

    ULIPs provide insurance coverage along with investment benefits. The insurance component helps secure the policyholder's family's financial future.

  • Tax Benefits

    1. Savings Plans

      1. Tax deduction under Section 80C#

        Premiums paid in a financial year towards premium of ULIP savings plans are eligible for a deduction under Section 80C# up to the limit of Rs. 1,50,000/- in a financial year.

      2. Tax exemption on maturity/death proceeds

        Proceeds received on maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D)# i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

      In addition to the above, for policies issued after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

      Rest policies exceeding the mentioned limit will be chargeable as capital gains.

      Death proceeds shall be exempt from tax for all ULIP plans.

    2. Pension/Annuity Plans

      1. Tax deduction u/s 80CCC

        Premiums paid in a financial year towards pension/annuity plan for receiving pension from a fund are eligible for deduction under Section 80CCC# up to the limit of Rs. 1,50,000/- in a financial year.

      2. Tax exemption u/s 10(10A)

        Any payment received in commutation of pension as a lump sum on maturity is exempt under section 10(10A) of the Income-tax Act, 1961, subject to fulfilment of various conditions under the current income-tax law.

      Regular annuity pay-outs under an annuity plan are taxable.

What Are the Benefits of ULIPs in Retirement?

When you choose a ULIP for retirement, you enjoy the following benefits:

  • Capital Appreciation

    ULIPs provide long-term investment options that help build wealth over time. By investing in a ULIP plan, individuals can benefit from capital appreciation in the long run.

  • Tax Breaks

    ULIPs offer tax deductions under Section 80C#, 80CCC# and tax exemptions under Section 10(10A) & Section 10(10D) of the Income Tax Act, 1961, as the case may be, subject to fulfilment of various conditions under the current income-tax law.

  • Investment Control

    ULIPs let investors choose how the funds get invested. You can select a mix of equity and debt funds and even make switches during the policy term to take advantage of market fluctuations.

  • Regular Income

    You can receive your ULIP maturity benefits in monthly instalments, providing you with a regular income once you retire.

How to Choose the Right ULIP for Retirement?

Choosing the right ULIP plan for retirement can be a daunting task. Here are some factors that individuals should consider when choosing a ULIP for retirement:

  • Investment Horizon

    Individuals should choose a ULIP plan with a long investment horizon of at least 10 to 15 years to benefit from capital appreciation.

  • Risk Appetite

    Individuals should consider their risk profile when choosing a ULIP plan. Risk-averse investors may opt for debt-oriented ULIP plans. Those willing to take risks may choose equity-oriented plans.

  • Charges

    Individuals should also consider the charges associated with the ULIP plan, such as premium allocation, mortality, fund management, and surrender charges. Find a plan with low fees to maximise returns.

  • Fund Performance

    Individuals should also consider the past performance of the ULIP fund before investing. Although past performance is not indicative of future performance, it can help investors make informed decisions. They should choose funds that have outperformed their benchmarks consistently.

  • Flexibility

    Investors should also consider the flexibility the ULIP plan offers. Some plans limit the number of fund switches or limit partial withdrawals after the five-year lock-in period.

ULIPs can be an effective investment tool for retirement planning, as they offer long-term investment options, tax benefits, life insurance coverage, and flexibility. Individuals should choose a ULIP plan based on their investment horizon, risk profile, charges, fund performance, and flexibility. Identifying the right ULIP plan lets you enjoy a comfortable and financially secure retirement.

Factors To Consider When Investing in the ULIP Plan

To get optimum benefits for your investment in the ULIP plan, you have to consider the following factors:

  • Age

The longer you stay invested in ULIP plans, the higher are the returns. Investment at any early age is recommended to get maximum benefits.

  • Evaluate the options

Compare the various ULIP plans available on online platforms and choose the one that suits your future financial goals and budget.

  • Periodical Upgrading

As you age, your financial commitments and concerns change at different stages of your life. Monitor your ULIP plan consistently and upgrade the premiums to enhance your retirement corpus.

FAQs

Q. Is ULIP good for retirement?

ULIP is good for retirement as it provides a dual benefit of insurance and investment. A part of the premium you pay goes towards life cover and the remaining for investment in market-related instruments. You have the choice to create your investment portfolio with an option to switch between funds depending on market returns. The investments made, help grow your money while the life cover provides financial security to your family in your absence.

Related Article

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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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Disclaimers

# The above stated views are based on the current income tax law & are subject to conditions specified under Section 80C, 80CCC, 10(10A) and 10(10D) of the Income Tax Act, 1961. Tax Laws are subject to change from time to time. Customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.