What will you do if you had an income without having to work? Perhaps work more, just for fun. However, building an income stream which works regardless of whether you do or not should be a priority for you. But how do you achieve this feat is the tough question.
You can use multiple investment options including ULIP schemes for your goal. However, before you select the investment option, you need to have a few numbers clear.
Here’s a step by step process to help you achieve our regular income goal.
Step 1: How Much Income You Need?
The question could be interpreted as ‘the amount of income you need’ or ‘the amount you want’. What you will need to consider is that the higher amount of income you want the higher you will need to invest, and perhaps longer too.
But what should be the basis of this goal? You can include several factors, however, the following two will be the most important:
Also, remember that your income will need to be inflation-adjusted over time. So, it cannot be a fixed amount for a long time.
Thus, if your current total for these two expenses is Rs. 30,000 a month, 20 years later this will be close to Rs. 60,000 a month. Also, this amount should grow at a specific rate for inflation after your income starts.
Expense Scenario Just Before Your Retirement
Since this goal is to start an income before your actual retirement, you can aim for the minimum amount you need to maintain your lifestyle.
You should try to imagine your expense scenario 5 to 10 years before your retirement. These 10 years between 50 to 60 are the years when you will see some of the largest financial goals fulfilled.
Child’s higher education, marriage and apart from the related expenses your personal lifestyle cost would be pretty low.
Thus, if you can have a source of income which fulfils this need for you, you are free to use 80-90% of your monthly income towards investment in these years.
Step 2: How Much Can You Invest Now?
This is an important question for you to consider, as we can set too high a benchmark for our goal. But our current reality will have a defining say if the goal is practical or not. Understand that you should keep this goal separate from other financial goals, including retirement, with this goal.
So, how much can you allocate every month towards this goal now?
Given that you are already investing towards multiple other goals, you can aim to allocate anywhere between 10 to 30% of your income for this goal. So, if you are earning Rs. 1 lakh a month, you should aim to invest about Rs. 10,000 to 30,000.
The best way is to ensure you can invest the same amount as your present expense rate for this goal. For example, if your necessary household and healthcare expense is Rs. 30,000 now, invest close this amount.
Step 3: How to Use the ULIP Plan for This Goal?
ULIP plans like Invest 4G from Canara HSBC OBC Life, allow you to continue your ULIP policies till the age of 80 under normal plans. However, if you expect to surpass this age you can also choose the lifetime option which will cover you till the age of 100.
Once you have decided which plan to use. Here’s what you should expect from this investment, assuming you invest Rs. 25,000 p.m.:
The last point is important, as the ULIP plans deduct mortality charges from the corpus. While, till the age of 60, mortality charges are relatively low, they start rising dramatically after 60.
But mortality charge is deductible only when your corpus is below the sum assured of the policy and only on the balance amount.
For example, in this case, your life cover under ULIP scheme is Rs. 30 lakhs. If your total accumulated corpus in a policy year is Rs. 10 lakhs, mortality charges for the balance Rs. 20 lakhs will be deducted from the corpus.
This also means that the moment your corpus grows more than life insurance sum assured, mortality charge on your policy will become zero.
What to do if your corpus goes below sum assured after 60?
In case you have to withdraw excess amount from the plan and your corpus happens to drop below Rs. 30 lakhs (in this case), you can apply to surrender the policy. But, do keep in mind the following points:
Benefits of this Income Plan
This is the most important part. The benefits of using ULIP schemes for creating an additional income stream for you could be better than other plans. Here’s why:
The only limitation with ULIP schemes is that you cannot invest more than 10% of the sum assured in any given financial year. Not because the ULIP plan would not allow, but because the excess investment in any FY will eliminate the tax benefit on maturity value.
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