Planning for retirement is an important part of personal finance, as it ensures financial security and stability during the post-retirement phase. It is essential to begin investing early in life to build a significant retirement corpus that can cater to one’s future needs and avail of ULIP benefits.
Hence it is vital to understand what is a ULIP plan. A ULIP is a type of investment plan that provides the twin benefits of investment and insurance, making it an ideal choice for building a retirement corpus.
With aULIP plan, individuals can invest their money in market-linked funds, providing the potential for higher returns over the long term. Additionally, ULIPs offer tax benefits and investment flexibility, permitting individuals to select from a range of funds based on their risk appetite and financial goals. The loyalty additions and insurance coverage make ULIPs an attractive investment option for retirement planning.
In addition to being excellent investment vehicles for capital growth, ULIPs also provide life insurance, enabling people to financially secure their loved ones in the event of an emergency. ULIPs provide both a life insurance policy and an investment to achieve long-term goals.
Here are five ULIP benefits why one can rely on a ULIP to increase their retirement corpus, ranging from providing the choice to select the investment type, providing a life insurance policy, and providing tax advantages:
When someone places their money in a ULIP plan, they take control of all of their investments. The investor makes all decisions on the distribution of funds, including the allocation of funds, based on their needs. So, depending on how much time they have to accumulate the retirement corpus, they can choose a mixture of equity and debt instruments.
Additionally, ULIPs give you the flexibility to change funds at any moment. For instance, a young individual who invested most of their money in equities funds at the beginning of their career may progressively transfer to debt funds as they get closer to retirement age.
Creating Long-Term Wealth
ULIPs are a significant financial commitment. They have a five-year lock-in period, which encourages investors to hold onto their money for many years. A person’s corpus can get better the longer they invest. Insurance companies also provide bonuses to encourage investors to hold their investments for ten or more years.
The fact that ULIPs fall into the E-E-E or Exempt-Exempt-Exempt category makes them an excellent alternative for constructing a retirement fund. The entire investment made in the ULIP is tax-free. Investments up to Rs 1,50,000 are deducted from the investor’s taxable income each year. Furthermore, the investment returns are tax-free as well.
In case of an emergency, ULIPs also provide the investor to make partial withdrawals that are tax-free. In addition, the depositor’s nominee will get a tax-free life insurance payout.
If you’re opting for the new Tax Regime, you will not get the benefit on these instruments, but you can get it with the old regime.
Life Insurance For Loved Ones
ULIPs give people life insurance in addition to the flexibility to make an investment as per their choice. In cases where the insured experiences a tragic event, their loved ones will be compensated with the sum assured. When building your retirement fund, having life insurance is crucial, especially if you’re the only source of income.
Another significant advantage of ULIPs for retirement planning is the ease of managing one’s investments. Individuals who are not well-versed in market trends or are not inclined to actively manage their investments can benefit from ULIPs’ automatic switching of funds. With a ULIP pension plan, individuals can discuss their retirement goals with their fund manager, who can make changes to their portfolio on their behalf. The fund manager can switch between debt and equity funds to optimise the investment returns based on market conditions, ensuring that individuals can maximise their retirement corpus without the hassle of actively managing their investments.
This feature makes ULIPs an attractive option for individuals looking for a hassle-free way of building their retirement corpus. In conclusion, ULIPs offer the twin benefits of investment and insurance, making them an excellent option for building a retirement corpus. With the added advantage of automatic switching of funds and professional fund management, ULIPs are a reliable and efficient means of securing one’s financial future.
It is advisable to choose ULIPs with a long-term investment horizon, keeping in mind one’s risk appetite and financial goals. Make sure you comprehend all aspects related to what is a ULIP plan.