Who doesn’t want to enjoy a peaceful retirement after a life of working hard? To achieve this, there needs to a robust retirement plan in place, but as per recent surveys, retirement planning in India is an underutilized financial practice, with the number of Indians savings for retirement has dropped from 45% in 2022 to 38% in 2023. This is a worrying statistic, especially in a time when inflation has been on the higher side. Furthermore, the same survey indicates that almost 60% of respondents save for emergencies, and 50% save for their children’s wellbeing.

Chances are that if you are on a limited income, you would have also prioritised many other things over your retirement planning. But there is a way to consolidate an emergency corpus, secure the wellbeing of your family, and save for your retirement as well. In this article, we’ll explore Unit Linked Insurance Plans, that combine life insurance and market linked investment and prove useful in a variety of life situations, one of them being retirement. Let’s begin.

What are Unit Linked Insurance Plans (ULIPs)?

ULIPs are hybrid life insurance products offered by all major insurers in India. They combine life insurance coverage and market-linked investments to give you the dual benefits of financial security and financial growth. Now you might be wondering, how do they work?

When you purchase a ULIP, you are required to pay premiums just like you do for any other insurance policy. These can be paid at your desired frequency. These premiums are invested in market linked funds of different asset classes, like equity, debt or balanced, as per your preferences. The premium is also utilized to provide you life coverage for the sum assured amount you have opted for.

Over time, your investment in your selected portfolio appreciates in value (as per the market performance) and a corpus is created. There is a 5-year lock-in period during which you cannot access these funds, but after that period is over, you can avail the accumulated funds either fully (by surrendering the policy) or partially.

How Can They Help in Retirement Planning?

ULIPs are a great retirement planning tool because they provide:

1. Market-Linked Returns: ULIPs invest in either equity or debt, depending upon the choice of an investor, or in a combination of both. Such market-linked funds help generate higher returns over long-term investment.
2. Flexibility in Investment: ULIPs offer flexibility in the choice of term for premium payment and options for investments. They allow the investor to design the investment portfolio to be based on his horizon for investment, risk capacity, and financial objectives.
3. Insurance Cover: ULIPs provide life insurance along with investments. The insurance component secures the policyholder's family financially.
4. Tax Benefits: Premiums paid in a financial year towards ULIPs are eligible for a deduction under Section 80C, up to the limit of ₹1.5 lacs in a financial year. Furthermore, the proceeds received on maturity of the ULIP plan are free from tax, subject to provisions mentioned in Section 10(10D), i.e., if the amount is received under a life insurance policy issued on or after 1st April 2012 but on or before 31st March 2012 and premium payable for any of the years during the policy term does not exceed 10% of the death sum assured.

In addition to the above, for policies issued after 1st Feb 2021, tax exemption on maturity proceeds is applicable only if the premium paid in any of the years does not exceed ₹2.5 lacs. Otherwise, the proceeds will be taxed as Capital Gains. Lastly, death benefits are exempt from tax for all ULIP plans.

How to Use ULIPs for Retirement Planning

ULIPs provide some unique, flexible features that help to build a profitable retirement corpus investment in India. Here is a detail of these features and how they can be used to build the required funds.

1. Analyze Your Requirement: First and foremost, it is very important to analyze the amount of funds required with respect to the retirement needs. Every individual has a unique lifestyle and financial commitments that would need specific financial resources. So, you should discuss with your family what you are going to do with your life after retirement. Any family obligations, like your child's education, marriage, routine expenses, will define your requirements after retirement. Based on these requirements, decide on the funds required, accounting for the rate of inflation. These will become the base of your ULIP pension plan.
2. Decide On the Life Cover: As a part of the premium amount goes in for the life cover, you need to calculate the requirement and ensure that there is a sufficient sum assured for your family in the unfortunate case of your demise.
3. Choose the Right Funds to Invest In: ULIPs provide a range of fund options according to the level of risk, including low-risk debt funds, high-risk equity funds, and balanced hybrid funds. Choosing the right ones can ensure your portfolio is robust and primed for growth without you being uncomfortable with the associated risk.
4. Switch Between Fund Options: The ULIP insurance plan also gives options to switch between the fund options based on the changing market scenarios. For instance, one can switch from equity funds to hybrid or debt funds when the economic situation is not ripe enough for the financial markets to increase in value. Most insurers give you an unlimited number of switches in a year without charging an additional cost.
5. Invest for the Long Term: When you plan to build a retirement corpus, you have to look for a long-term investment. ULIPs have a lock-in period of 5 years, and it thrives when you have a long investment horizon.
6. Customize Your ULIP Policy: ULIPs also allow for premiums to be paid as per your chosen frequency. You can choose from single, limited, or regular premium payment options.

Conclusion

If the recent inflation trend is anything to go by, retirement planning will be crucial for the current crop of professionals. For accumulating a large enough corpus that meets all your obligations as well as keeps you comfortable, it is essential that you start early and invest in a long-term financial instrument like a ULIP. For some of the best ULIP offerings in India, check out Edelweiss Tokio Life Insurance. Their Wealth Secure+ is a great new-age ULIP that offers a host of features at an affordable cost.

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