How to Build Wealth for Retirement with ULIP?
Making retirement plans can be pretty empowering, right? It is a part of life that may drive you to keep working hard and take steps towards building wealth and accomplishing your goals. Since you place such a high value on your wealth-building goals, it is natural to wonder how you will achieve them. While there are many investment schemes in the market, ULIP Plan is one of the most versatile instruments to help you achieve your wealth goals and secure retirement.
What is ULIP?
ULIP is the acronym for Unit Linked Insurance Plan. It is a unique financial instrument that offers two benefits – insurance protection and wealth building. It allows you to invest in different market-related instruments such as debt funds, equities, stocks, shares, and bonds. It also secures your family’s financial future through its insurance component.
How ULIPs help you build wealth for retirement?
- Through regular savings
ULIP plan helps you foster the habit of regular savings, which is vital for any wealth-building goal. Since ULIP is primarily a life insurance product, you must periodically pay the premium to keep the policy active and enjoy its benefits. Besides, buying ULIP is a long-term financial commitment. You can choose a policy tenure ranging from 10-15 years or more. It also has a lock-in period of five years.
All this means you must continuously keep investing money till the policy ends. Every time you pay the premium, a part of the amount is invested in money market instruments to generate returns.
- Inflation-adjusted returns
As mentioned earlier, ULIP allows you to invest in different asset classes based on your risk profile and long-term goals. For example, if your goal is to build a retirement corpus, you can allocate a large portion of the funds to equities. While equity investments have a higher risk factor than balanced and debt funds, they also have the potential to offer higher returns, which helps you beat inflation.
However, you must stay invested for a long time and keep investing regularly through different market phases to get better returns. Historically, ULIPs have offered 10-15% returns, which is much higher than any other traditional investment options. You can use the ULIP calculator, a simple and free online tool, to compute the returns from your investment and allocate the funds to different assets accordingly.
- Tax benefits
Apart from helping you grow your wealth and offering valuable returns, ULIPs also enable you to save taxes. It is considered one of the most tax-efficient investment instruments that enjoy EEE (exempt, exempt, exempt) tax status. The premium you pay for the policy is eligible for tax benefits up to Rs. 1.5 lakhs in a financial year under Section 80C of the Indian Income Tax Act.
Also, the maturity proceeds your family may receive from the policy after your demise is entirely tax-free under Section 10(10D) of the IT Act.
Thus, it is no secret that ULIP is an excellent investment option to have in your portfolio to build wealth for your post-retirement life. The sooner you buy ULIP, the better, as you will have a more extended period to build a considerable corpus.