When thinking of insurance plans that have more to offer than life cover, ULIPs are one of the popular options available. While ULIPs are usually categorised as insurance, they also have a side that offers investment benefits, thus helping you build your wealth over the years. Although ULIP benefits do not explicitly serve as a retirement plan, they can be used as a broader part of your retirement.
The National Pension Scheme (NPS) is a pension scheme offered by the government. It is directed towards enabling citizens, especially employees in the private, public, and unorganised sectors, to save money towards their pensions. If you want to start a regular saving habit to build a retirement corpus, this is one of the plans available.
A ULIP, or Unit-Linked Insurance Plan, is a policy that offers a life cover as well as investment opportunities. Your premium is segregated so that both these aspects are maintained separately, and the market fluctuations do not affect your life cover sum assured.
These plans usually have a lock-in period of five years. You can choose from options such as equity funds, liquid funds, and fixed income funds when deciding where to invest through ULIPs. The dual ULIP benefits of insurance and investment can help you steadily build a corpus. You can choose to use this as a retirement corpus by redirecting it towards retirement plans.
What Is NPS?
The National Pension Scheme is a retirement plan option offered by the government. You can start making regular deposits into an NPS account, from which you can start receiving a regular pension upon retirement. The account also allows you to withdraw a certain part of the savings as a lump sum. If you seek to withdraw a lump-sum post retirement and yet want to continue receiving a regular pension, you will be required to maintain at least 40% of the total sum in the account.
This is a voluntary scheme for anyone looking for a pension plan. The plan is generally considered low in risk. If regular deposits have been made for at least three years, the account holder can also use a part of the fund before their age of retirement. You can set the account to either auto-choice or active-choice. The latter lets you decide where your investments are directed. Auto-choice means the course of investment is decided for you, based on your age and appropriate risk levels.
ULIPs vs. NPS
If you are trying to weigh ULIP benefits vs. NPS advantages, remember that each of these financial products is meant to serve varying purposes. Unit-linked Insurance Plans help you build wealth while also offering a life cover. If your family were to face unfortunate circumstances, it would help them stay financially stable. You could also use your ULIP gains to add to your existing retirement plan or build a new one.
NPS, on the other hand, is meant to facilitate a simplified and steady progress towards pension. The option to be able to avail of a lump sum adds to the appeal.
Here are some of the key differences between ULIPs and NPS, to help you understand how they can add to your financial portfolio:
|Unit-Linked Insurance Plans
|National Pension Scheme
|Insurance and Investment plan
|Offered by various insurance providers
|Offered by the Central government, available through various agencies
|Several fees and recurring charges attached
|Management fee of up to 0.25%. No recurring charges
|Suitable for customers seeking investment
|Suitable for customers seeking annuities
|Offers life insurance
|Customer may want to buy life insurance separately
|For discontinuation, a charge of Rs. 600 plus an account closing procedure is needed.
|For discontinuation, a charge of Rs. 100 needs to be paid.
If you are looking for a ULIP-like alternative to NPS, ULPPs are an option to consider. ULPP, or Unit-Linked Pension Plan, offers the investment aspect of ULIP benefits without the life insurance cover. Instead, consumers are offered the option to withdraw a third of their accumulated corpus upon retirement. The rest is redirected towards annuities.
The differences between ULPPs and NPS are almost the same as the differences between ULIPs and NPS. Of these three, only ULIP offers insurance.
As a consumer, it may be easy to be overwhelmed with these options. It is easier to make the right choice if your goals are clear. For retirement plans, NPS and ULPPs are suitable. The ULIP insurance advantage makes it more worthwhile for someone looking to have a life cover and also enjoy investment benefits.