Understanding ULIP Plans for Senior Citizens: What You Need to Know

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ULIPs as an investment option have gained importance due to their dual benefits of insurance & investments. If it comes to senior citizens, it becomes crucial to evaluate whether they align well with financial requirements, risk tolerance level, & investment horizon.ULIPs are insurance cum investment plans which allow you to invest to meet your long-term financial commitments, along with providing life insurance coverage. 

In case of a sudden demise of the policyholder, the beneficiaries will receive the death benefit or the fund value, whichever is higher. In case the policyholder survives the policy, the policyholder will receive the fund value that would have been accumulated, depending on the fund’s performance. This means they receive the benefit of wealth preservation along with growth, while being allowed to switch between the funds depending on their risk appetite. 

How Ulip Plans Work?

The following are the steps to know how ULIP Plans work:

• At first, it involves payinga premium to purchase a ULIP, where all the premiums paid are put together. After this, they are invested in market-linked investments by the insurance company.
• The policyholder has to select the fund type, i.e. debt, equity, or balanced funds, depending on their risk profile.
• Once the funds are invested, the corpus gets divided into single units bearing a face value. Of which, an investor gets units depending on the amount they have invested. This is known as Net Assets Value (NAV), which keeps varying depending on the market conditions.
• Whenever the premium is paid, units equivalent to that amount are added to your plan.
• This plan comes with a 5-year lock-in period, where the funds are paid only at the time of maturity or once the period of 5 years has been met.
• The associated number of units is sold depending on the relevant Net Asset Value at the time of partial or total withdrawal of funds.
• Whenever the policyholder dies, their nominees receive either sum assured amount, 105% of the premium amount or the accumulated fund value, whichever is higher.

Should Ulips be chosen for Retirement Planning?

Let us know the reasons why an individual can buy ULIPs for retirement planning:

• Power of Compounding

One should start investing funds for their retirement planning the moment they start earning. ULIPs come with the power of compounding, which lets your funds grow by generating returns on initial investments & the amount accumulated thereon over a period of time. 

• Long-term Investing

It is always advised to invest for a longer duration while investing in market-linked funds, as it balances out the fluctuations of the market & helps earn better returns. ULIPs come with a 5-year lock-in period, providing the plan for up to 75-80* years of age. This allows an investor to yield maximum returns by taking advantage of a longer tenure.

*Note: Entry and maturity age may vary from one insurer to another. Do check the entry and maturity age from your preferred insurer. before investing.

• Loyalty Additions

Some of the insurance companies do offer loyalty addition points. This means being associated with an insurance company for a certain specified number of years, such as 10, will bring them loyalty &additional units at some specified rate. 

• Risk-based Investing

This plan allows funds to be invested in a type, depending on your risk profile. This includes equity fund for risk lovers, i.e. who are willing to accept the risks, debt funds for risk-averse individuals, those who are reluctant to take risks & lastly, a hybrid for medium risk investments. 

• Fund Switching

This plan allows switching between the funds multiple times, well aligning the policyholder’s risk appetite with their life stages or associated market conditions.This means in the initial years of investments, one can invest in equity funds, & eventually can reduce their proportion. Thereafter can opt for debt funds or balanced funds.

• Tax* Benefits

This plan includes tax deduction on the premium amount paid u/s 80C of the Income Tax Act, 1961. The maturity benefits are exempt from tax as per sec 10(10D) of the Income Tax Act, 1961, if the premium paid is less than 2.5 lakhs in a year. On the contrary, if the premium amount paid is above 2.5 lakhs, the maturity proceeds are to be taxed as capital gains.

Benefits of ULIPs for Senior Citizens

• Creation of a retirement corpus

This plan lets us create a retirement corpus by investing in market-linked securities. This lets a policyholder earn returns depending on market situations, letting you meet your financial obligations & fulfil your lifestyle. You can also use a ULIP Calculator to calculate the estimated amount of retirement corpus that can be saved.

• Estate planning

This plan involves performing estate planning by leaving behind a legacy for their family members. It basically involves life insurance coverage, where a lump sum benefit is paid to the beneficiaries in case of sudden demise, letting them meet their financial obligations.

• Manage your investment

This plan is flexible in terms of choosing your investments. Let us see how:

1. It allows you to select from a variety of funds to allocate the premium amount depending on your risk tolerance level.
2. Some plans are focused on investments, allocating premiums depending on pre-determined financial objectives.
3. It allows you to investment of additional premium amount with the help of top-ups.
4. It allows you to switch between the funds subject to certain terms & conditions, without any tax implications.
5. It allows you to redirect the premium amount towards some other funds, depending on the terms & conditions.
6. It lets you manage, customise, & control your investment portfolio.

• The facility of withdrawals in emergencies

This plan allows an investor to withdraw their funds, partially providing them with liquidity of funds in an unfortunate circumstance.

• Tax benefits

This plan includes tax deduction on the premium amount paid u/s 80C of the Income Tax Act, 1961, hence reducing your tax liability & building a retirement corpus. The maturity benefits are exempt from tax as per sec 10(10D) of the Income Tax Act, 1961, if the premium paid is less than 2.5 lakhs in a year. On the contrary, if the premium amount paid is above 2.5 lakhs, the maturity proceeds are to be taxed as capital gains.

Conclusion

ULIPs can hence be considered by senior citizens to attain market-linked returns. An investor can consider it subject to ULIP being well aligned with the financial objectives & risk tolerance level. By considering both the advantages & disadvantages, you can make an informed decision, ensuring financial security & mental peace.