Many types of life insurance policies are on offer in the market today. Life insurance policy plans are basically about financially safeguarding the nominees or family members of the policyholder in case of an unfortunate death within the policy period.
There are many types of policies in this regard, including term life insurance plans, group insurance plans, whole life insurance, and more. But what if you came across plans that were not just about life coverage but also about other varied benefits too? Life insurance plans can also help you achieve long-term life goals, one of the most common among them being a safe and comfortable retirement.
Enter ULIPs and endowment plans, two of the most popular picks for investors in recent times. These plans are sometimes regarded as ideal for retirement planning purposes as well. So let’s take a closer look at them from this perspective.
How ULIPs can help you
Unit-linked insurance plans, or ULIPs, as they are popularly called, offer an excellent opportunity to build a sizable future retirement corpus. In addition, you can also get life coverage for the entire policy tenure, with the sum assured paid out to your nominee(s) in case of your unfortunate death within this period.
With a ULIP, you not only get life coverage but also returns on investments. How is this possible? Your premium is invested in buying units of equity, debt, liquid, or hybrid market-linked funds. You can choose the funds you wish to invest in with your risk appetite and financial profile in mind, along with the future objectives you want to accomplish. Fund switching is another feature of ULIPs that can significantly benefit you. For example, suppose the market is witnessing a boom. In this case, you can switch most of your units to equity funds to maximize your returns. If the market falls in the future, you can enhance your allocation to comparatively safer debt funds to protect your fund’s NAV (net asset value) and lower your risks.
Here are some of the advantages of ULIPs for your retirement portfolio:
- Their returns consistently surpass those of many other retirement plans. Of course, the risk quotient is higher, but long-term investments will help you ride out temporary market fluctuations and get higher rewards.
- As mentioned, you can access various fund choices for your investments. Depending upon prevailing market conditions, you can also switch between funds to protect your returns or enhance them.
- You can also boost your returns with top-up premiums and get several riders for additional protection
- ULIPs have lock-in periods of five years, post which you can withdraw a part of the corpus that has been accumulated to date
- You can get tax deductions up to Rs. 1.5 lakh as per Section 80(80C) of the 1961 Income Tax Act on your premium payments
- If your annual premiums are lower than Rs. 2.5 lakh, your maturity benefits will also be free from taxation as per Section 10D
How can endowment plans help you with your retirement planning?
Endowment plans are regarded as more suitable for investors who are averse to taking any risks. They also come with life coverage for the policyholder. You can invest for the long haul in order to get future benefits. They are low-risk portfolio options in most cases.
Here are some of the benefits of selecting endowment plans:
- They enable future retirement savings since you will get a maturity benefit and the guaranteed sum assured if you survive the policy tenure
- Bonuses and profits are guaranteed and accumulate over the long haul, increasing through compounding
- Based on the plan type, they come with negligible or zero risks
- Riders like accidental death benefits, critical illness insurance, total/partial disability from accidents, and others, may be added to boost overall coverage
- You can tweak the premium payment frequency at your convenience. You may choose bi-annual, monthly, yearly, or quarterly payment options.
- You also get tax benefits on your premium payments under Section 80C and your maturity benefits under Section 10D
Which one should you choose?
Your decision will naturally depend on your risk profile, financial position, and future goals. For example, if you have a higher tolerance for risks and are more confident about weathering out market fluctuations over the long haul, then ULIPs are suitable options. On the other hand, if you are entirely averse to risks and desire guaranteed returns, then you can choose endowment plans.
