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5 reasons to go to ULIPs for building a retirement corpus

5 reasons to go to ULIPs for building a retirement corpus

ULIPs for retirement

Retirement is one of the moments of transformation. Regardless of how your life has been, but once you reach the retirement goal you need a steady income from the pool you built. After retirement, there should not be a struggle for earnings.

Therefore, before you retire you need to ensure that you can build a large enough pool to spend your retirement in comfort, and if possible, prosperity. While you have many investments to save for your retirement, very few beat the capacity of ULIP schemes when it comes to wealth building.

ULIPs are unit-linked insurance plans provided by life insurers and offer a range of features for investors to grow their money.

Here are five superb features of ULIPs which make this investment scheme the best for building a retirement corpus.

1. Wealth Boosters

The longer you invest, the better your wealth gets with ULIPs. ULIP plans like Invest 4G from Canara HSBC OBC Life offer bonus units for investors who invest for more than five years. The units are added to your existing portfolio without any charge.

Invest 4G plan offers a higher bonus for investors staying for more than 10 years. The only condition with this feature is that you invest your premiums in time and regularly. This is a simple problem to solve using auto-debit from your bank account.

In fact, as far as possible you should use auto-debit mode for investments, especially if they are for a goal as important as retirement.

Tax-Exempt Maturity Value (& investments)

ULIPs are amazing when it comes to accumulating tax-free wealth. You can invest as much as you want and build a corpus of multi-crores, all tax-free. All you need is to ensure that your annual investment into the plan does not exceed 10% of the life insurance sum assured in the policy.

If your investment into the ULIP investment plan exceeds this ratio in any financial year, the returns on the excess amount will be taxable at maturity. If you are investing for more than 15 years this amount can be huge, which is highly likely for a retirement goal.

It is also very likely that you’d want to allocate more surplus to the plan from time to time. The recommended solution is to make sure your life cover in ULIP plan is more than 10 times of your expected annual investment.

For example, if you plan to start your investment with Rs. 2 lakhs a year, apply for a sum assured of Rs. 25-30 lakhs. This will allow you additional margin in the future to add more funds to the plan, without incurring tax liability on maturity value.

Top features of the Invest 4G ULIP

3. Only Investment Option with Customizable Asset Allocation

ULIPs offer investments into multiple funds at the same time. These funds could be a mix of equity and debt (balanced funds) or either of the two. Changing your asset allocation or moving money from one type of fund to another does not change tax status for the investment.

Also, you can change your asset allocation anytime or even withdraw money partially after the lock-in period. So, if you want to manage your allocation yourself, you have full control in the ULIP.

4. Automated Portfolio Management

ULIPs are the only long-term investment plans which offer custom asset allocation strategies for investors. Invest 4G plan offers four different strategies to manage your portfolio. These strategies will do the following without your intervention:

  • Exploit market opportunities
  • Maintain the risk of your portfolio
  • Keep your accumulated wealth safe from market fluctuations when close to maturity

This kind of automation allows you to focus on your career and family while your money works harder and grows. Needless to add that these strategies add more value with time. So, another valuable feature for long-term investors.

5. Life Cover for Spouse

If you are married to a homemaker, her financial needs and goals are entangled with yours. In the case of your untimely demise, her retirement and financial goals will also suffer greatly. But with ULIP you can ensure that this does not happen.

While ULIPs have a life cover, plans like Invest 4G go a step ahead and secure your future investments as well. So, if you happen to meet your ultimate fate, the insurer will make sure your ULIP reaches the goal you intended for it.

The insurer will invest all future premiums on your behalf after paying the life cover sum assured upon your death. The funds will continue to grow and at maturity will be paid out to your spouse.

Recommendations

You should use multiple investments to save for your retirement. If you are salaried, you likely have NPS or EPF accounts for retirement savings. But retirement is such a goal that it is impossible to fill the gap in the final years or after retirement. So, you should avoid taking any chance and invest more in the beginning.

Early investments receive maximum compounding and will add a lot more value to your corpus than the huge investments in the later years.

Speak to an insurance specialist now!

FAQs

In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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