Planning for retirement is an important part of one's financial journey, and choosing the correct investment plans in India to establish a strong retirement portfolio is not a simple task. As per the experts, it is recommended to use a retirement calculator to find out how much you should save per month to lead a comfortable life after your retirement. Among the different options available, Unit Linked Insurance Plans (ULIPs) have grown in popularity in recent years. ULIPs are one of the best Investment plans in India that offer both insurance coverage and financial options, making them an appealing option for retirees. It allows you to invest in high-risk stock funds with higher returns, low-risk debt funds, or a mix of the two, depending on your risk tolerance.

In this post, we will provide various reasons why ULIPs are considered good retirement options so that you can make an informed decision of whether to include ULIps in your retirement plan or not.

Let us see how ULIP plans work:

A ULIP, like all other types of life insurance, requires you to pay a premium. The insurance provider pools all ULIP subscribers' premiums and invests them in market-linked funds.

The policyholder can select an equity, debt, or balanced fund according to their risk profile.

After the money is invested, the corpus is divided into individual 'units' with a set face value. You will receive a specific number of units dependent on the amount invested in your ULIP. The value of each unit is referred to as a NAV (Net Asset Value), and it fluctuates in response to market conditions. Each time you pay your premium, a certain number of units are added to your coverage.

ULIP policies come with a five-year lock-in period. The accumulated corpus can be withdrawn partially after the 5-year lock-in period or paid out at maturity.

When you withdraw totally or partially from your ULIP, the specified number of units is sold depending on the current NAV. You can use the retirement calculator to see how much your ULIP plan is contributing to your retirement corpus.

In the event of your death during the policy term, the designated beneficiary will receive either 105% of the premiums paid to date or the accrued fund value (after subtracting any withdrawals), whichever is larger.

Reasons Why ULIps Make Good Retirement Plans

Help you to generate wealth: One of the primary reasons ULIPs should be included in your retirement portfolio is their ability to generate long-term wealth. Individuals can use ULIPs to invest in equity funds, which have historically outperformed traditional fixed-income options. Individuals who invest in ULIPs for an extended period of time might benefit from compounding and accumulate significant wealth over time. Based on the last ten years' performance, a person should 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.

Provides tax benefits: ULIPs also provide tax benefits, making them an excellent addition to any retirement portfolio. Individuals can deduct tax on ULIP premiums up to Rs. 1.5 lakh per year under Section 80C of the Income Tax Act. Furthermore, the maturity profits of ULIPs are tax-free under Section 10(10D) of the Income Tax Act, making them tax-effective Investment plans in India.

Allows you to switch between funds: Another benefit of ULIPs is the flexibility and control they provide. Unlike typical insurance plans, ULIPs enable individuals 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 their collected wealth.

Transparency: Before purchasing a product, you will be informed of the charge structure, investment value, and estimated rate of return for the entire duration of the policy. It's usually a good idea to learn about the product in which you'll be putting your hard-earned money. Similarly, the annual account statement, quarterly investment portfolio, and daily NAV reporting will keep you updated on the health of your investment portfolio at all times.

Death Benefit: One major benefit of choosing a ULIP is the death benefit, which is available to dependents following the death of the policyholder. The death benefit assures that the policyholder's dependents have access to financial stability and can maintain their usual lifestyle even in the policyholder's absence.

What to know before you invest in a ULIP plan?

To minimize future confusion, one must first comprehend the risks and benefits of ULIPs:

ULIPs can be a part of your retirement portfolio if you have a 15-20-year investment horizon. Investing Rs. 10,000 per year for 15 years at an expected 8% inflation rate can grow your money to approximately Rs. 2.5 lakhs.

ULIPs give both investing rewards and life insurance coverage. This is especially advantageous for those who do not have separate life insurance coverage. The life cover offered by ULIPs assures that in the case of the policyholder's death, their family will receive a lump sum payment that could help them maintain their level of living. The product can be a terrific addition and is better suited for young individuals and early retirement planning.

However, before investing in ULIPs, it is critical to fully understand the terms and conditions, charges, and potential risks. Consulting with a financial professional can help you assess whether ULIPs are appropriate for your retirement goals and risk tolerance. You can also use the retirement calculator to further see how much your ULIP plan is contributing to your retirement corpus.

Finally, a well-structured retirement portfolio should include a variety of Investment plans in India, and ULIPs can be an effective addition to the overall approach. All of these factors make it prudent to select a ULIP plan for retirement planning. Additionally, senior citizens with consistent income in their post-retirement years can continue to invest in ULIPs. They can choose low-risk loan investments to continue building their money. This allows them to leave a large financial legacy for their children and grandkids.