Retirement planning confuses most people. Too many options. Too many opinions. Everyone claims their product is best for your future.
Two options dominate conversations today: ULIPs and SIPs. Insurance agents push ULIPs hard. Mutual fund advisors swear by SIPs. Both sound convincing until you actually run the numbers.
That’s where a retirement planning calculator becomes essential. Not the biased ones on product websites. The best retirement planning calculator shows you real numbers without trying to sell you anything.
How ULIPs Get Taxed
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ULIPs are insurance-investment hybrids. You pay a premium. Part of it goes toward life cover. The rest gets invested in equity or debt funds.
Tax treatment works like this:
- On premiums. Under the Old Regime, premiums qualify for deduction under Section 80C up to ₹1.5 lakh. Under the New Regime, you get nothing.
- On maturity. If your annual premium is below ₹2.5 lakh and you stay invested for at least five years, maturity proceeds are completely tax-free under Section 10(10D). This applies in both regimes.
- On early exit. Surrender before maturity, and proceeds get added to your income and taxed per your income tax slab.
The big draw of ULIPs is the tax-free maturity. Whatever corpus you build after ten years comes to you without any tax bite. For someone in the 30% bracket, that’s huge.
How SIPs Get Taxed
SIPs are systematic investments in mutual funds. You put in a fixed amount monthly into equity or debt funds.
Tax treatment:
- On investment. No deduction in either regime. What you invest doesn’t cut your taxable income.
- Equity funds. Long-term gains above ₹1.25 lakh are taxed at 12.5%. Short-term gains at 20%.
- Debt funds. Gains added to income and taxed per your slab.
The advantage of SIPs is flexibility. Stop anytime. Start anytime. Withdraw partially whenever needed. But the tax treatment on gains isn’t as clean as ULIPs, especially for high earners.
How This Plays Out at Different Income Levels
Let’s run three real scenarios.
Someone earning ₹8 lakh annually under the Old Regime
At this income, you’re in the 10% bracket after the standard deduction. You can claim 80C deductions.
Put ₹1 lakh into a ULIP. You save ₹10,000 in tax through 80C. Maturity after ten years is tax-free. Decent outcome.
Put ₹1 lakh into SIP. No tax savings upfront. Gains above ₹1.25 lakh get taxed at 12.5%.
At this income level, ULIP has a slight edge purely on tax. Not massive but noticeable.
Someone earning ₹16 lakh annually under the New Regime
You’re in the 20% bracket. But filing under the New Regime means no 80C deduction.
Put ₹1 lakh into ULIP. No tax savings upfront. Maturity is tax-free, which is still good.
Put ₹1 lakh into SIP. No tax savings upfront either. Gains taxed at 12.5% above ₹1.25 lakh.
The gap narrows significantly here. Without the 80C benefit, ULIP loses much of its upfront appeal. You’re basically banking only on tax-free maturity. The ULIP vs SIP decision becomes less clear-cut.
Someone earning ₹26 lakh annually under the New Regime
You’re in the 30% bracket. No 80C available.
ULIP maturity is tax-free. On a ₹50 lakh maturity corpus, that’s valuable when your regular income gets taxed at 30%.
SIP gains above ₹1.25 lakh are taxed at 12.5%. If your corpus is ₹50 lakh with ₹30 lakh in gains, you pay roughly ₹3.6 lakh in tax.
At this income level, tax-free ULIP maturity starts looking very attractive again, even without the 80C benefit.
Flexibility vs Tax Efficiency
This is what the ULIP vs SIP choice really comes down to.
ULIPs make more sense tax-wise when:
- You’re in a high-income tax slab, and tax-free maturity saves serious money
- You’re disciplined enough to stay put for the full term
- You’re under the Old Regime and can use the 80C deduction
- You don’t need the money for at least five years
SIPs make more sense when:
- You want freedom to stop or withdraw anytime
- You’re under the New Regime, where 80C doesn’t help anyway
- You’re in a lower slab wherethe tax difference is small
- You want lower costs and more fund choices
Neither wins in every situation. It depends on your income tax slab, your filing regime, and how much flexibility you need.
The Part Nobody Talks About Enough
ULIPs have higher charges than mutual funds. Fund management fees, mortality charges, and admin charges. These eat returns especially in the early years.
Even if the tax benefit looks good, check if higher charges kill that advantage. Sometimes they do. Sometimes they don’t. Depends on the specific product.
Always compare net returns after charges and after tax. Not just tax breaks alone.
What You Should Actually Do
Don’t go with generic advice. Run your own numbers.
Check your current income. See which income tax slab you’re in. Decide which regime you’ll file under. Then calculate actual post-tax returns for ULIP and SIP based on your situation.
Someone at ₹10 lakh under the Old Regime might find ULIP better. Someone at ₹18 lakh under the New Regime might prefer SIP. Someone at ₹28 lakh under the New Regime might swing back to ULIP purely because of tax-free maturity.
The ULIP vs SIP choice isn’t about which product is objectively superior. It’s about which fits your tax situation better right now.