ULIP vs NPS (National Pension Scheme): Best for Retirement?

What is ULIPs?

Many people want to save for the future and protect their families. This is where ULIPs come in. But what is ULIP exactly?

ULIP stands for Unit Linked Insurance Plan. It is a plan where you get both insurance and savings in one. A part of the money you pay goes towards life insurance. The rest is invested in funds like equity or debt, depending on your choice.

Funds within ULIP products let you pick between varying levels of risk exposure. Through ULIPs, your money will grow with time, and your family remains protected against loss in case of the unforeseen event.

Today, ULIPs are flexible. You can switch between funds offered as per your financial goals.ULIPs has a five-year lock-in, and partial fund withdrawals can be done only after expiry of 5 years.

In short, what is ULIP? It is a plan that helps you save and protect at the same time.

What is NPS?

Now, let us understand what NPS is.

NPS stands for National Pension System. It is a retirement savings plan started by the Government of India. It helps you save a part of your salary regularly during your working life so that you have enough money after you retire.

NPS lets you allocate your investments to a combination of equity and both government bonds as well as corporate debt. Fund managers must be selected by policyholders when purchasing their products.

You can take out up to 60% of your saved money. The remaining 40% can be used to buy an annuity that gives you regular income every month.

In simple words, what is NPS? It is a savings plan that builds your retirement fund with safe returns.

Comparison of ULIPs with NPS

Now that we know what is ULIP and what is NPS, let's check the difference between ULIP and NPS. Here is a simple comparison for you:

As you can see, the difference between ULIP and NPS lies mainly in purpose, returns, insurance, and flexibility.

Both are good, but you must choose based on your future needs.

Which is Better: ULIP vs NPS?

Let us now decide: ULIP vs NPS, which is better?

Investors who need fast money growth, together with insurance protection, should choose ULIP as their financial product. People seeking high returns alongside risk-taking ability will find ULIP to be the appropriate choice for them.

The National Pension System (NPS) is structured to offer retirement benefits through regular pension payments and market-linked returns with a focus on long-term stability. Unit Linked Insurance Plans (ULIPs), on the other hand, combine Insurance and market-linked investment, allowing policyholders to invest in market-linked funds while also offering insurance coverage.

Choosing between ULIP and NPS?

It all comes down to what you're planning for. ULIPs blend investment with life insurance, offering flexibility and growth potential. NPS, on the other hand, is designed to build a retirement corpus  and provide regular income in your later years.    

ULIP vs. NPS - Summing It Up

Choosing between ULIP vs NPS is not about which one is better for everyone. It is about what suits your goals.

ULIPs offer a combination of life insurance and market-linked investment options, making them suitable for individuals seeking both protection and potential growth. NPS, meanwhile, focuses on building a retirement corpus and providing regular pension income, catering to long-term financial planning needs.

Before making a decision, think carefully about your retirement goals, how much risk you are ready to take, and how flexible you want your savings to be.

Remember: your retirement planning must match your comfort level and dreams for the future.

Final Word

When planning for your future, it is important to understand the difference between ULIP and NPS. Both ULIP vs NPS offer ways to save and grow your money, but they are meant for different people with different needs.

A person who needs life insurance coverage and demands both      returns and acceptance of moderate risks will find ULIP to be suitable. People who want protected retirement funds combined with regular pension money may consider NPS.

Learning about ULIP and NPS, along with their operational principles, should be your first step before arriving at a choice. Your happiness in life will depend on the wise decisions you make today.

 

FAQs  

What are some alternative long-term investment options to NPS??

Public Provident Fund (PPF) and Employee Provident Fund (EPF) are also good options for saving money over a long time.      

Are NPS contributions tax-deductible?

Yes, when you put money in NPS, you get tax benefits. You can save under Section 80C and get extra savings of ₹50,000 under Section 80CCD(1B) (under old tax regime). This means you can lower your total tax amount every year by showing your NPS contribution while filing your income tax.

Do ULIPs offer tax benefits?

Yes, ULIPs offer tax savings. When you pay for a ULIP, you can claim a tax deduction under Section 80C (under old tax regime). Also, when the ULIP matures, the money you get can be tax-free under Section 10(10D), but only if certain conditions are met according to the tax laws.

Can I withdraw from NPS before retirement?

Yes, you can take out some money from your NPS account before you retire. You are allowed to withdraw up to 25% of your own contributions after staying invested for at least three years. You can use this money for things like education, buying a house, or treating a serious illness.

Can I make partial withdrawals from ULIPs?

You can take some money out from your ULIP after maintaining the account investment for at least five years. A partial withdrawal is permitted according to the ULIP policy. Your insurance company determines the withdrawal limitations along with the number of withdrawals allowed.