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How does a ULIP plan help you reach your investment goals?

How does a ULIP plan help you reach your investment goals?

Life Insurance Investment options

We have a lot of financial goals in our lives, especially when we have a family. Many of these goals are born almost daily, a lot of them forgotten, but few goals change our lives for the better. Yet, few goals have the potential to define our future or if not ours at least our children’s.

Your child’s higher-education goal is one of those goals which can ensure a brighter future for him/her. While you are in the world for your family, you can look after these goals, but what happens in your absence? Unit Linked Insurance Plans can help.

Securing Important Financial Goals

Insurance is the only way to ensure your family’s important goals like higher-education for the child, are financially protected. Now you have two different solutions for this challenge:

  • Add the goal’s cost to a term insurance plan
  • Insure the goal separately

Term insurance solution may sound simple and easy. But remember, that the goal might be 10-15 years away when you are buying the term insurance plan. So, it is unlikely that you can account for the inflation in the term plan. At best you can hope to secure the current cost of the goal with term insurance.

For example, if the current cost of your child’s higher education goal is Rs. 20 lakhs, 15 years from now it will be close to Rs. 50 lakhs. At the time of purchasing term cover, your eligibility will be counted based on your present income. This limit makes it difficult to account for all your goals’ future costs in your cover.

So, in a way term cover may not provide adequate financial protection for your financial goals. What about the second solution?

Investing to Ensure Financial Safety of Goal

Securing your goals future cost needs more than just the life cover. First part is to ensure a separate investment plan for the goal. So that you have a dedicated and clear investment plan in execution.

For example, you will need to invest about Rs. 1.5 lakh every year to meet the goal of your child’s higher education 15 years from now. So, you can start a separate investment where you will invest only Rs. 1.5 lakhs every year.

This way you can track and readjust the investments to stay on course towards the Rs 50 lakhs goal.

The second benefit of investing separately for important goal is that you can insure each separately. For example, investing in ULIPs may allow you to insure the fund allocation for your child’s goal.

How Does ULIP Safeguard Your Goal?

ULIPs like Invest 4G plan from Canara HSBC OBC Life offer dual insurance on your ULIP investment:

  • A minimum life cover, 10 times of your annual premium
  • Assurance of investment on your behalf in case of your demise before maturity

Thus, Invest 4G will make sure that your family not only receives a death claim but also stays free from the burden of funding the goal.

An Example: You start on your path to Rs. 50 lakhs corpus for your child’s education goal. Your annual investment in Invest 4G plan is Rs. 1.5 lakhs, which you will continue for the next 15 years. The ULIP will have a life cover of Rs. 15 lakhs (10 x of annual investment).

Unfortunately, in the 7th year, you pass away, leaving the goal halfway through. You have invested Rs. 7 lakhs so far.

Upon your demise, your family will file a death claim and receives the life cover amount Rs. 15 lakhs immediately. But the invested funds will continue to grow, and the insurer will continue investing on your behalf for the next eight years.

Thus, your funds not only keep growing but also receive fresh investments as you would have done if alive. The family will receive the maturity value of the funds at the time of intended maturity.

ULIPs for planning your retirement

Secure All Important Goals

Not just the education goal, if you have any other financial goals as important as this, use a good ULIP plan to secure the goal for your family. Another important goal that you should consider is your retirement goal, especially if your spouse is financially dependent on you.

You would not want her to suffer due to inadequate retirement corpus in case of your early demise. Adding ULIP like Invest 4G to your retirement investment portfolio can ensure that she ends up with enough corpus despite any setback.

Speak to an insurance specialist now!

FAQs

In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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