In the journey toward building a substantial corpus for your retirement plans, market-linked returns are only one piece of the puzzle. The true ‘secret sauce’ that accelerates wealth creation in ULIP plans (Unit Linked Insurance Plans) lies in their unique reward system: Loyalty Additions and Wealth Boosters.
These are not just feel-good gestures; they are concrete, periodic infusions of capital from the insurer, designed to reward disciplined, long-term investors. By consistently paying your premiums and staying committed to the policy over decades, you unlock a significant bonus layer of compounding that dramatically boosts your final retirement fund.
What Are Loyalty Additions?
Loyalty Additions, sometimes referred to as Loyalty Bonuses, are essentially rewards for consistency. They are structured as an incentive to prevent policy surrender and encourage you to complete the full term of your savings plan.
- How They Work: At predetermined intervals often starting after the fifth or tenth policy year, and then credited annually or every few years the insurer adds a percentage of your total fund value (or sometimes a percentage of the premiums paid) to your existing corpus.
- The Power of Extra Units: These additions are credited as extra units to your fund, at no additional cost to you. This means that from the moment they are credited, these new units begin to compound with the rest of your investment, earning market-linked returns for the remainder of your policy term. Even a small percentage added consistently can create a profound difference in the size of your retirement plans corpus over a 20 or 30-year period.
Understanding Wealth Boosters
Wealth Boosters are similar to Loyalty Additions but are typically larger and credited at major policy milestones, such as the 10th, 15th, or 20th anniversary.
- Amplified Rewards: Wealth Boosters are often a higher percentage of the average fund value over the preceding period. Their structure is specifically designed to give a substantial, non-market-dependent boost to the fund value right at a critical juncture in your savings plan.
- Compounding Fuel: Because these boosters inject a larger sum into the policy at specific long-term points, they provide a massive injection of compounding fuel. This is particularly valuable for retirement plans, as the amount added at the 15th or 20th year still has many years left to grow exponentially until your scheduled retirement age.
The Strategy for Maximising Your ULIP Plans
To fully capitalise on these rewards, your retirement plans strategy within the ULIP must focus on consistency and policy tenure:
- Prioritise Longevity: Since Loyalty Additions and Wealth Boosters are contingent upon the policy being active and premiums being paid on time, choosing the longest feasible policy term (e.g., until age 60 or 70) ensures you receive the maximum number of these reward cycles.
- Zero-Cost Enhancement: In the context of fees, these additions effectively help offset some of the charges levied by the policy over time. By injecting capital, they act as a direct, no-cost enhancement to the net returns of your ULIP plans, especially when compared to investment options without such loyalty benefits.
- The Hidden Tax Benefit: These bonuses, as part of the overall maturity proceeds, are generally tax-free under Section 10(10D) (provided the annual premium limit is met). This makes Loyalty Additions and Wealth Boosters a highly tax-efficient method of accelerating the growth of your retirement plans corpus.
In essence, ULIP plans reward you twice: first, for successful market performance, and second, for your financial discipline. When selecting a ULIP for your retirement plans, look beyond the immediate charges and fund performance, and carefully evaluate the schedule and quantum of the Loyalty Additions and Wealth Boosters, as these are the hidden accelerators that will help you achieve your financial goals sooner.