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Are ULIPs A Good Choice Of Investment For Retirement Planning?

Updated On Dec 07, 2021

A well-planned retirement minimises the need to borrow money at a vulnerable time in an individual’s life when they don't have a reliable source of income to satisfy their respective needs. To prevent having to revisit investment decisions, individuals should make sure that the financial policies are well-understood and that any confusion has been resolved.

A ULIP (Unit Linked Insurance Plan) is a type of insurance that allows an individual to save for the future while simultaneously providing safety. As it is a long-term investment, a ULIP is an ideal choice for a retirement plan. A ULIP, like a term insurance policy, requires ongoing investments in the form of premiums paid to the insurance provider by the insured individuals. To understand more about ULIPs, read on.

Why Individuals Should Invest In ULIPs?

Following are some reasons for individuals to invest in ULIPs -

  • Investment Returns

When it comes to investing, security and rewards are the two most important factors to consider. When an individual buys a ULIP, an individual gets both of these benefits. ULIPs have a lower average return than other investment options, such as retirement endowment plans. The premiums are centred on market-linked returns, which is one of the reasons why ULIPs are so successful.

  • Investment Option

ULIPs differ from other alternative investments in that they consider each individual’s particular financial needs as well as their risk tolerance. A potential buyer can invest in equity, bond, or hybrid products depending on their financial goals and fund needs.

  • Dual Benefit

In India, the ULIP is the unique financial product that provides a dual advantage of investing and life insurance coverage through a single investment. As a result, an individual won't need to purchase separate insurance and investment plans to protect their respective future. This saves individuals a lot of money on premiums and allows them to better manage their budget.

  • Insurance

Any investing strategy must include security. A percentage of a ULIP's premium is utilised to cover it. This ensures the financial stability of an individual’s loved ones while they are away.

  • Tax Rebates

ULIP investments are eligible for tax rebates under Section 80 C of the Internal Revenue Code. Every year, an individual can collect up to INR.1,50,000 for their ULIP assets. Similarly, under Section 10D of the Income Tax Act, the returns they get at the maturity of their ULIP insurance are tax-free. Furthermore, under Section 10 (10D) of the Income Tax Act, the sum received by the nominee upon the death of the insured is tax-free.

  • Flexibility

If an individual’s investment isn't yielding the desired returns, ULIPs allow the option to individuals to switch between funds to increase their earnings. Individuals frequently select equities funds at the outset of their investing process for high returns, then move to debt or a combination of debt and equity funds as they get closer to their financial goals for additional protection. The same logic applies when the economy is especially turbulent.

  • Assured Sum

When an individual purchases a ULIP, the insurance coverage guarantees a specific sum of money to the nominee in the event of the respective individual’s untimely death within the policy term. This predetermined amount is known as the ‘sum guaranteed,’ and it is tax-free.

  • Withdrawals In Lock-In Period

Individuals are usually not allowed to make partial withdrawals during the lock-in period when they make any kind of investments. On the other hand, ULIP benefits allow an individual to make withdrawals throughout the lock-in period. However, when an individual makes such withdrawals during the lock-in period certain fees and deductions are deducted from the amount.


Equity funds invest in business stocks and offer the largest profits, but they also carry the most risk. Debt investments are the safest since the premium is invested in government assets, but the returns aren't as good as equity investments. Finally, combination funds, as the name indicates, allow individuals to pick how much equity and debt they wish to invest in, based on their risk tolerance. Insufficient retirement planning may lead an individual to abandon their goals in their golden years. It's a good idea to set aside money for a pension fund that will allow an individual to maintain their current lifestyle once they retire.

Also read: When Is The Right Time To Invest In A Retirement Plan?

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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.    

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