How ULIP Helps You Build Additional Income for Retirement


Everyone wants to have an alternate source of income but building a second stream may not seem an easy task. However, it should be your priority, and there are several ways to achieve this.

One of the options is investing in a Unit-linked Insurance Plan (ULIP). These are policies that offer the dual benefits of insurance and investment.Now that you understand what is ULIP policy, here is a stepwise process to build an additional source of income for your later life:

  • Determine the amount needed

Based on your current lifestyle, you can identify the sum that you will require in the future to sustain it. Make sure that you include the increase in expenses due to inflation. This will help you in figuring out the corpus required to ensure you achieve financial independence even after your retirement.

  • Check your investible surplus

As per your calculation, you may have to earn a huge corpus to meet your futureobligations. Remember that you will have to invest more money to create a larger corpus. However, you may not have the entire amount you need to invest to fulfill your monetary obligations. 

It is recommended that you invest between 10% to 30% of your current earnings to achieve this goal. Additionally, it is advisable to invest any extra income like a bonus towards this objective to grow your wealth over the longterm.

  • Use ULIPs to achieve financial freedom

There are some types of ULIPs that allow you to continue your investment until a later age. Moreover, you can continue staying invested in certain policies until the age of 100. Although the policy benefits continue until this age, you will need to invest for a lesser duration, which may differ from one insurer to another.

At the end of the premium payment period, you can start making withdrawals from the accumulated corpus. You need to ensure that the withdrawal is less than the sum assured (SA). This is important because the insurance company levies mortality charges to provide life coverage. Although mortality charges are lower when you are young, they may significantly increase once your age is over 60.

If you need to withdraw more resulting in the accumulated corpus falling below the SA, you can surrender your policy. However, before surrendering the plan, check if you can meet the shortfall in the mortality charge through the policy earnings during the year. Additionally,ULIPs offer tax-free benefits to your family and provide them with financial stability. This makes them an excellent investment avenue.

Benefits of ULIPs

ULIP insurance policies have several advantages when compared to other investment options. These include:

  • Providing the flexibility of investing your money in different asset classes, such as equities, bonds, and hybrid funds, thereby allowing you to build wealth over the longterm
  • Seeking the assistance of experienced professional fund managers who invest based on your risk appetite, age, and financial goals to deliver maximum returns
  • Offering the convenience to switch between funds without incurring any tax implications
  • Providing the facility to partially withdraw money from the accumulated corpus at the end of the five-year lock-in period
  • Offering tax deductions of up to INR 1.5 lakh per year on the premium paid for the ULIP insuranceas perSection 80C of the Income Tax Act, 1961
  • Giving tax-free maturity proceeds and policy benefits to your nominees under Section 10(10D) of the Act

One limitation of ULIPs is that you cannot invest more than 10% of the SA in a particular financial year. Although insurers do not levy this restriction, it is wise to comply with it because if you exceed this limit, you will lose the tax-free benefit for the maturity proceeds.



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