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ULIP To Pass On A Tax Free Estate To Your Grandchildren

ULIP To Pass On A Tax Free Estate To Your Grandchildren

ULIP for investment

Canara HSBC OBC Life Insurance’s Invest 4G Unit Linked Insurance Plan offers a whole life feature, which can help you pass on the estate to your grandchildren. The plan’s whole life cover option continues the policy cover till 99 years of age. Meaning, it’s almost certain to pay-out to your nominees, instead of maturing within your lifetime.

The ULIP policy has numerous other features as well which can help you in achieving other financial goals in life, including wealth creation goal. Thus, you need to carefully select the option which allows you to use the ULIP investment as a wealth transfer plan.

How to Use Invest 4G Plan for Estate Transfer?

Estate or wealth transfer typically has two phases:

  • Wealth building or accumulation
  • Wealth distribution

While using Invest 4G plan for estate transfer we can add another step between accumulation and transfer, that is ‘preservation’. So, going step by step, first, you build the wealth you want to transfer, then preserve it until the transfer is feasible, and then transfer.

Transfer of wealth is usually automated, as legacy transfers will be executed only after your death. This rule applies more to ULIP policies or any other life insurance policies.

Wealth Building with Invest 4G

Invest 4G plan gives you many features to help you build wealth comfortably. You can use the following features of this plan to accumulate the financial estate:


Selecting the Correct Sum Assured

Sum assured for the life cover under ULIP plans plays an important role. The life cover increases the mortality charge on your investment. Thus, you can keep the sum assured to a minimum required amount unless you also want to use this policy as a life cover for your family or for tax saving under section 80C for the premiums.

If you have already exhausted your 80C limit with investment in other goals and plans, you are free to invest any amount in this plan. The logic behind this freedom is:

  • The death benefit is anyway tax-exempt under section 10(10D) of the IT Act
  • The policy is expected to only pay out the funds as a death benefit

However, if there is any chance for you to withdraw the money from the plan, you should keep the sum assured to at least 10 times of the annual investment amount.

For example, if you plan to invest Rs. 2 Lakhs every year into this plan, your sum assured has to be at least Rs. 20 lakhs. The rule applies regardless of the investment tenure.

Use Limited Premium Payment Term

Estate transfer to the next generation through life insurance generally means – ‘transfer upon death.’ So, the policy will continue for a lifetime. However, you should not have to pay premiums after your retirement.

Limited premium payment option allows you to limit your payments into the plan until your retirement. Invest 4G has options of a minimum of 5 years to 30 years premium payment term.

Even with the limited premium payment tenure, you should follow the 10% rule to avoid tax liability in case of withdrawals.

For example, whether you are planning to deposit Rs. 2 lakhs for only five years or 10 years, the sum assured should be Rs. 20 lakhs.

Invest in Multiple Funds

Based on the time available to you for the investment and your risk appetite, you can invest in a mix of equity, debt, balanced and liquid funds under the same plan.

Balanced funds are a dynamic mix of equity, debt and liquid assets. Fund managers will change the allocation according to market opportunities in these funds. However, they are usually equity heavy.

So, if you want a lower equity exposure for your investments, you can create a mix of your own.

Use Portfolio Management Strategies

Portfolio management strategies will help you manage the risk of your portfolio if you are investing in equity funds. These strategies will automatically adjust your portfolio so that you can benefit from market opportunities while keeping the risk in check.

For example, you can fix the ratio of debt and equity in your portfolio to 70:30. The plan will adjust your portfolio to match this ratio from time to time. This means as the markets outperform debt funds money will flow from equity funds to debt funds securing your gains. The reverse flow will happen in case markets are in a downtrend, which will boost your gains when markets rise.

Invest 4G plan offers four strategies for portfolio management:

  • Systematic Transfer: Best if you are more comfortable investing once a year but still want to be systematic about your equity allocation. This strategy will transfer the lump sum funds from liquid funds to equity fund every month. So, your equity allocation receives the benefit of rupee cost averaging.
  • Auto Fund Rebalancing: Lets you fix an investment ratio for equity, debt and liquid funds for your overall portfolio. The plan will rebalance your portfolio every three months to match this ratio of assets. This strategy helps you keep your investment risk steady while drawing value from market opportunities.
  • Return Protector: Protects your gains from equity funds by transferring them to debt funds as soon as they reach the threshold. You can decide the threshold for this rebalancing.
  • Safety Switch: This option works in the last four policy years. With whole life cover option, it is less likely to come into effect. But you can choose this option with any of the three strategies above. This option gradually transfers all your money in equity funds to liquid funds in the last four policy years.

Wealth Preservation with Invest 4G

The investment strategies help you accumulate your corpus in your earning years. While after your retirement you would want the accumulated money to at least not erode in value. For this, you can change your portfolio strategy to match your new goal of wealth preservation.

You can achieve this by moving your equity fund allocation gradually to a debt fund or liquid fund. Remember, however, that debt funds will be the right choice if your investment tenure is more than five years for wealth preservation.

Debt funds returns will help your corpus to stay safe from inflation, but the fund needs time to realise these returns. Liquid funds are a better choice if your remaining tenure is less than five years.

Wealth Transfer

This is perhaps the easiest part, as all you need to do is change the nomination to your grandchildren in the policy. You should use an electronic insurance account (e-IA) to store and manage your life insurance policies.

e-IA will make it easier for you to change nominations and monitor your policies during your lifetime. You can also assign an ‘authorised person’ to ensure that your family can access all your active policies and file claims. Thus, Invest 4G ULIP helps you pass on a tax-free estate to your grandchildren.

Speak to an insurance specialist now!


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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