Retirement planning is a must for people looking to spend their golden years comfortably without having to run around for arranging the necessary finances. While several investment options are available, instruments that offer both financial protection and wealth creation prove to be highly beneficial. Let us find out more about Unit Linked Insurance Policies that can help you achieve your long-term goals including retirement planning.
What are ULIPs?
The answer to a commonly asked question: What is a Unit Linked Insurance Plan is that it is an investment plan that offers both insurance protection and wealth creation. This is done by using a portion of the investor funds to invest in various instruments including equities while balancing the risk through diversification. Also, the investment decisions are taken by experts who are well-versed with the working of the various markets thereby reducing the risk involved in investment. Features that make ULIP Policy an attractive option are:
- They offer numerous investment options in terms of different investment products, sectors, the proportion of equity and debt and even capitalisation.
- They offer investors a chance to switch their investment options from equity to debt to a mixed fund with changes in their age and risk profile. Most funds offer a certain number of free switches in a year.
- They allow investors to use their surplus money and opt for a top-up premium in their existing plans. The charges for a top-up are much lower than buying a fresh policy or plan.
- Most ULIPs offer automatic asset allocation to match the changing risk profile of investors.
ULIPs Vs Pension Plans
Traditionally investment in pension plans that ensure an annuity after you retire was considered the best form of retirement planning. However, the introduction of newer options that offer both insurance protection and wealth creation has made people explore ULIP investments.
Pension plans are specifically formulated to cater to the fund requirements of an investor after retirement. The coverage term is generally for the whole life of the person with investors having the choice to choose a deferred annuity plan or an immediate annuity (lump sum payment). ULIPs differ from these plans as they serve as an insurance cum investment vehicle offering market-linked returns. ULIPs also offer investors the flexibility to choose from a variety of plans with varying investment goals. Investors in ULIPs can make partial withdrawals from the 6th year onwards. The benefits of ULIP and pension plans include the tax exemptions available on investments in these plans.
How ULIPs Can Help with Retirement Planning?
ULIPs help in retirement planning by:
- Offering returns that are generally higher than many other options like fixed deposits and pension plans largely due to their investment in equities.
- Offering an option to rebalance the asset allocation in response to changing risk appetite.
- Automatic rebalancing of funds to counter market fluctuations.
- Offering financial protection in case of any mishap or mis happening.
Who Should Get ULIPs?
ULIPs are highly suitable for investors who are looking for both returns and protection. They can use a ULIP calculator to finalise the amount of premium for achieving a specific corpus in a specific duration. ULIP returns are higher compared to many other investments and come with an added advantage of insurance protection.
To conclude, the meaning of a ULIP plan is market-linked returns along with insurance cover. These plans prove to be very useful for fulfilling retirement and other long-term goals.