Using One ULIP Plan to Meet Multiple Life Goals

Himanshu and Shraddha Biswas got married 5 years ago. Although they had been careful with their financial needs, they lagged in planning for financial goals. Now they are parents to a 3-year-old child and seriously considering changing their investment habits for a better future for the child.

Let’s see if they can meet all their financial goals with a single ULIP investment plan.

What is ULIP Investment?

ULIP stands for ‘unit-linked insurance plan,’ and is a versatile investment plan from life insurance companies. ULIPs allow you to invest in markets, fixed income (debt) and liquid funds as per your risk appetite.

ULIPs are the only investment option which allows you to move your funds between equity and fixed income funds without increasing your tax liability.

Also, the premiums you pay in the ULIPs help you save tax up to Rs. 1.5 lakhs under section 80C of the Income Tax Act. The maturity value or partial withdrawals from ULIPs are also tax-free under section 10(10D) provided:

• Your premium investment did not exceed 10% of the life cover under the plan

So far as you keep this condition in mind while investing in ULIP, your investment returns remain tax-free.

The Long Term Financial Goals

Himanshu and Shraddha listed a number of serious financial goals for the family. After much deliberation they agreed on the following goals for being unavoidable and important:

To meet all these goals in their life they need money almost every five years.

Investing in the Goals

Out of all the financial goals, retirement is one goal which should not be mixed with other goals. However, any funds left over from the savings of other goals can be added later to the retirement corpus for the family.

Since we are considering a single ULIP plan for achieving all these goals, we will need to keep the limitations of ULIP in mind:

• You will need to choose a life cover in the beginning
• The investment will stay tax-exempt so far as your premium investment is less than 10% of the life cover

For example, if you choose a life cover of Rs. 30 lakh, you can invest a maximum of Rs. 3 lakh a year to keep the investment entirely tax free at maturity.

Since the Biswas family has a long time of 30 years in their hands, they should choose a higher life cover. This will help them invest additional money if they have or need to later as their income and savings grow.

How Much to Invest?

Although the Biswas couple plans to invest for a very long time, their financial advisor has recommended being conservative in their estimates. She recommended using an 8% p.a. rate of return on their investments and sees how many goals they can meet.

The couple can invest up to Rs. 50,000 a month towards these goals including the retirement goal. Their advisor recommends dedicating Rs. 20,000 a month towards retirement goal and the rest for others.

Here’s what their investment performance looks like when they keep withdrawing money to meet the goals on the way. (Figure: Investing Rs. 30,000 P.M. in one ULIP for 30 years)

Figure: Investing Rs. 30,000 P.M. in one ULIP for 30 years

At the end of the 30 years, the family will have an additional Rs. 53 lakhs, which they can use for any purpose as they deem fit.

If the Biswas invest the entire Rs. 50,000 in this same ULIP, they can also meet their retirement goal at the end of 30 years. However, retirement is one goal where you will probably not have the chance to remedy your corpus mismatch.

That’s why it is recommended that you keep the retirement savings separate from other goals. You may apply for a loan to fulfil other goals while you are still employed. But, with retirement, there is little chance of any such opportunities.

How to Select the ULIP Investment Plan?

This one ULIP investment is going to be probably the most important one in your portfolio as it goes to a number of goals. Thus, you should look for features and benefits which will keep the journey smooth over a long period:

• Automatic Portfolio Management options
• Premium waiver and protection option

Automatic Portfolio Management Options

Automatic portfolio management options keep your engagement with the investments low and offer peace of mind while you focus on your income. Portfolio management options will offer the following advantages for your investment:

• Automatic allocation adjustment based as per market conditions
• Keep your investment risk limited
• Safeguard your investment and return from market volatility

For example, ULIP plan from Canara HSBC Life, Promise4Growth Plus offers four portfolio management strategies for you to choose. You can use these strategies to:

• Systematically invest your annual investment in equity funds
• Safeguard your equity returns by transferring the growth to liquid funds
• Maintain your portfolio risk with a fixed asset allocation ratio
• Safeguard your accumulated money in the final years of your policy

You can choose one of these strategies to manage your long term investments in the ULIP and achieve multiple goals within the policy tenure.

Additional Benefits of Promise4Growth Plus Plan

Promise4Growth Plus also offers additional benefits, especially for long-term investors in the plan. The plan will add bonus units to your existing portfolio at regular intervals. These bonus additions are called boosters. You can avail these, provided you:

• invest for a long period, e.g. 10 years or more
• Keep investing regularly throughout the policy period

We all have multiple financial goals in life. If we consider only the important financial goals, even then we can have multiple goals that will need money every few years. Can a single ULIP investment plan fulfil these multiple obligations?

Of course, it can. However, you can club similar goals together for better results. For example, use one ULIP for the goals of your child, and another for your own. This way it is easier to keep track of the goals when they are under or over-funded.