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ULIP Vs Pension Plans - Which is Better for Retirement?

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December 17, 2018
After retirement, a person's need for stable income stays the same and may even increase owing to the added medical bills but there is a parallel lack of a regular monthly paycheck. This means that for ensuring a stress-free retirement period, the due planning has to be done much earlier. Planning for retirement early in your career allows you to build up sufficient financial resources until the time comes for you to retire and you don't have to worry about any monetary hassles then. When it comes to building up funds for your retirement, one of the most prevalent and common modes is to take out an insurance plan that serves as an annuity product. Choosing a pension plan with the required features allows you to enjoy retirement coverage with the benefits involved. However, owing to the fact that there are lots of options present today, many people are also looking to ULIPs as an annuity instrument. 

Pension plans are annuity products that are specifically formulated to serve as instruments for retirement benefits after the policy holder retires. The coverage term usually lasts till the entire lifetime of the person and plans come in two variants - deferred annuity type (wherein the retirement fund is accumulated over time after the policy holder has paid the premiums) and immediate annuity type (which entitles the policy holder or her/spouse in joint cover to receive immediate lump sum payouts). On the other hand, a ULIP (Unit Linked Insurance Plan) is an insurance product that serves as a joint insurance and investment vehicle and offers market-linked returns with a minimum lock in period of 5 years. A ULIP offers multiple fund options which can be chosen by the subscriber as per her/his risk appetite and ULIPs also give the option of switching between funds. Upon completion of the policy term, the subscriber is entitled to maturity proceeds. As a ULIP carries an inbuilt life insurance clause, thus the subscriber's nominee(s) are also entitled to receive the sum assured in case of the subscriber's demise within the policy term.
 

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When it comes to a comparative analysis of ULIPs and pension plans to decide which option is the best, both these plans have their own benefits and relevant features. Viewed from the perspective of tax savings, ULIPs definitely score over pension plans, as ULIPs are eligible for tax exemption under Sections 80C and 10D of the Income Tax Act, 1961. Moreover, ULIPs are much more flexible in terms of fund options and choosing what to do with the accumulated funds. However, there is a catch here. Since ULIPs are not inherently defined to serve as annuity products, pension plans have an advantage that a particular percentage of the corpus is mandatorily meant to purchase annuity. In case of ULIPs, there is no such pre-fixed condition. If on one hand this allows you the freedom to invest the funds as per your wish, on the other it cannot be said that this serves as the guarantee of annuity. The best option is to plan your financial goals with focus on terms and then compare the various features that are available. 

HDFC Life offers HDFC Life Pension Guaranteed Plan - a single premium annuity plan that offers you to have a regular pension structure in place after retirement. For details, click on the mentioned link: https://www.hdfclife.com/retirement-and-pension-plans/pension-guaranteed-plan.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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