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What Is the Difference Between ULIP and Retirement Plan?

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What are ULIPs versus retirement plans? A unit-linked insurance plan comes with the dual benefits of investment opportunities and life insurance. They differ from traditional insurance plans because they invest in various assets to aim at generating better returns. On the other hand, a pension plan is an annuity that offers a sum assured to the policyholder after he/she retires. Generally, the coverage term is for the duration of the policyholder's life.

Read on to make an informed choice between a ULIP and a retirement plan.

Features of a ULIP


You have a choice of how much you wish to invest in wealth accumulation and how much you want to invest in life insurance. Plus you can switch between the available funds depending on their market values and performances.

Period of Lock-In

A ULIP comes with a lock-in period of 5 years from the time you start investing in the plan. You will be charged a penalty fee if you redeem your investment before this period.

Tax Benefits

Paid insurance premiums for a unit-linked insurance plan are tax-free under Section 80C of the Income Tax Act. Also, the maturity amount is free from taxation under Section 10, according to the Internal Revenue Code.


Owing to the high flexibility that you can enjoy by investing in a ULIP, its returns are often promising in the long run. But remember that returns depend on the market performance of the chosen funds.

Features of a Retirement Plan

Guaranteed Income (Pension)

You can get a regular and stable income right after investing (immediate annuity) or after retirement (deferred annuity) based on the kind of retirement plan you choose. Thus, you can make sure to have financial freedom even after you retire. You can use a retirement calculator to have a rough idea of the amount of money that you will require after retiring.

Survival Benefit

The annuity payments are made in parts as long as you are alive. If the pension plan offers a joint life annuity, the part payments are made as long as any one of the annuitants lives.

Death Benefit

In a single-life annuity, the nominee gets the purchase price after the annuitant's demise. After the death of an annuitant in a joint life annuity, the living annuitant continues to receive the annuity amount in full. After the demise of the last survivor, the nominee receives the purchase price.

Option of Loan against Policy

Some retirement plans allow you to take a loan against the policy. You never know when you come across an emergency and need urgent funds. This is when you can take a loan against this kind of pension plan to finance the emergency and pay it back gradually in EMIs spread across a suitable tenure.

Tax Benefits

The claims made and the premiums paid qualify for tax benefits under Section 10(10A)(iii) and Section 80CCC of the Income Tax Act.

If you wish to get the dual benefits of insurance and wealth generation, ULIP can be a good choice. But if you want to receive payments right after investing (available in an immediate pension plan) or take a loan against the policy, you can prefer a retirement plan.