Planning for retirement is an important part of one’s financial journey, and choosing the correct investment to establish a strong retirement portfolio is not a simple task when you are doing retirement planning. Among the different options available in India for retirement, Unit Linked Insurance Plans (ULIPs) have grown in popularity in recent years. Before you choose ULIP for retirement, there are certain aspects to know beforehand.
Why should you consider investing in a ULIP for retirement?
Provident Funds and Pension Plans are not enough: We all can agree on one thing: Numbers do not lie. According to statistics from India, 90% of retired employees rely on their children for financial aid because their savings run out quickly. The remaining 10% receive government pensions or assistance from previous employers, but even this falls short. Given the rise in medical care and day-to-day expenses, planning for retirement is critical.
Increase in Life Expectancy: As healthcare services improve, average life expectancy rises. However, this does not change the fact that financing is required to access such advanced medical services. According to the most recent data from the World Health Organisation (WHO), the average human life expectancy in India is 68.8 years (2018). According to another report, healthcare expenses in India are expected to double in comparison to the country’s overall inflation rate. So, it becomes imperative that you ponder on how one can pay for such facilities and continue to cover healthcare costs after leaving work.
Nuclear Family Setup: As more families choose a nuclear setup, it somewhat has an impact on life after employment. Essentially, one is on their own after retirement, and financial independence is the only way to cope with life post-job. Doing retirement planning in advance will give you the financial security you require in retirement years.
Helps you achieve your goals: Are you working day and night to meet the financial needs of your family? Do you have any plans in place to help your child accomplish their aspirations and goals? Congratulations to those who already have all of this in place! But the question is, are you compromising your own aims to support your child’s dreams? If you are, it’s time to start thinking about yourself. Especially if you have retired from your job, consider ULIP for retirement to save for the future and achieve your goals.
Potential for long-term wealth: According to the recent ten-year performance, an individual can expect to earn 11-20% yearly returns on their ULIP investment. It is a market-linked product with a high potential for building a retirement fund if the investor is willing to take risks. The product can be a valuable addition, particularly for early retirement planners and young people who are working on retirement planning.
Gives you flexibility: Another benefit of considering ULIP for retirement is the flexibility and control it provides. Unlike typical insurance plans, ULIPs allow one to switch between funds based on market circumstances and risk tolerance. Individuals can gradually convert their assets from equities funds to debt funds as they near retirement age to reduce risk and preserve the accumulated corpus.
Helps you save on taxes: ULIPs also provide excellent tax benefits, making them a great addition to any retirement portfolio. Under section 80 C, Individuals can deduct tax on ULIP premiums up to Rs. 1.5 lakh annually. Furthermore, the maturity profits of ULIPs are tax-free under Section 10(10D) of the Income Tax Act, making them a tax-effective investment alternative.
How Do ULIP Pension Plans Work?
Ulip for retirement is different as opposed to traditional retirement plans, providing both insurance coverage and investment benefits under a single policy. The ULIP premium you pay accumulates until you retire. When you retire, you will receive a portion of your investment (usually one-third) back. The remaining cash is invested in an annuity programme, and the policyholder receives a monthly, quarterly, or annual pension.
In other words, you can participate in market-linked investment opportunities and earn a significant sum by the time you retire while also protecting your family’s financial future with life insurance.
How Can You Build Your Retirement Corpus With ULIP?
ULIP Plans offer some unique flexible features that might help you establish a retirement corpus in India. Here’s how to do that:
Analyze your requirements: To begin, determine how much money you will need for retirement. Every person has a distinct lifestyle and family financial commitments that define their financial resources. As a result, you must discuss with your family what you intend to do with your life following retirement. Any family obligations, such as your child’s education, marriage, and regular spending, will determine your post-retirement financial needs.
Then, based on these requirements, determine the amount of funding required, taking inflation into consideration. These funds will be the foundation of your ULIP pension plan.
Decide on the life cover: Because a substantial portion of the cash is used for life insurance, it is critical that you evaluate the needs and guarantee there is a sufficient sum assured for your family in the event of your untimely death. Deciding on life insurance coverage is critical for retirement planning, given your family’s reliance on your income.
Choose the ULIP fund options: ULIP insurance offers a variety of fund options to suit different risk profiles. For example, you can select among low-risk debt funds, high-risk equity funds, or medium-risk hybrid funds.
Choose long-term investment: When preparing your retirement corpus investment, you must consider a long-term investment. Longer policy terms result in higher long-term advantages. ULIP insurance plans feature a 5-year lock-in period and allow you to invest for a longer period of time, such as 15 to 40 years.
Customize your ULIP Policy: The ULIP insurance plan also allows you to pay for the investment based on your financial situation, such as selecting from single, limited, or regular premium payment options. For example, if you started late, you can pay the premium for a limited time while still receiving the ULIP insurance benefits for the entire policy period, as appropriate.
At last,
Before investing in ULIPs, it is critical to fully understand the terms and conditions, charges, and risks associated with ULIP for retirement. Consulting with a financial professional can help you assess whether ULIPs are appropriate for your retirement goals or not. Finally, a well-structured retirement portfolio should include a variety of investment opportunities, and ULIPs can be an effective addition to your overall planning.