How to Use a ULIP Plan for Your Long-Term Financial Goals?

If you are anytime hitting your 30s, the retirement topic must be in your mind. How much to save? Where to invest? Which investment plans to consider? How to protect your family financially even if you are not there? Questions like such must be hovering in your mind. It is indeed true that planning for the long term can be tricky and a retirement calculator can be a great help in helping you begin the planning.

There are so many long-term investment plans in India that are usually less flexible which makes it harder for most of us to take the leap of faith and invest in them. A ULIP is one such investment plan that is an exception here. It offers high returns and life protection making them the ideal long-term tool. And, do you know ULIP charges are comparatively lower than several other investment plans in India? If you are still unsure about investing in a ULIP, in this article, we will tell you how to use ULIP to plan your long-term financial goals.

Step 1: What is the goal?

In this stage, you must define the following three parts of your retirement goal.

How much time do you have until retirement?

The time to retirement is determined by your current age since we assume the predicted retirement age of 60. So, if you are 30 years old now, you have around 30 years to reach your retirement objective.

How much money will you need from this ULIP in retirement?

The second question requires many more computations, but let us simplify them for our purposes here. Assume your and your spouse's current annual expenses total Rs. 6 lakhs. After retirement, you will require approximately Rs. 26 lakhs per year assuming an average inflation rate of 5%.

To create such an income every year at the age of 60, you will require around Rs. 3.25 crore. You can use the retirement calculator to change the variables. However, this is not the purpose of the ULIP alone; it is your total retirement corpus. If you have a few investments set up for retirement, you can deduct their value at age 60 from Rs. 3.25 crore.

For example, if you deposit Rs. 1 lakh every year in a PPF or NPS account, you can expect to get approximately Rs. 1.25 crore at the age of 60. That means you'll just require roughly Rs. 2 crore for the ULIP investment.

Where do we stand now?

If you have already begun investing in a ULIP or similar pension plan, you have the following two options:

• Make suitable revisions to the current plan and continue.
• Redirect plans to another aim and begin a new investment.

Step 2: Selecting a ULIP Plan

Choose a plan that allows you to create a portfolio management strategy and includes the portfolio strategies listed below:

• Systematic transfer option for once-a-year investors.
• Automatic fund rebalancing option: automatically adjusts your portfolio for market opportunities and protects returns.

Aside from these two, the ULIP you will select should be able to transfer the full corpus from high-risk to low-risk funds in the last few years. As you approach your objective, your earned money will be safe from market fluctuations.

Step 3: How Much to Invest?

The answer to this question relies on: How much money can you invest?

For instance, using the scenario we used above as an example, you will need to invest approximately Rs. 1.8 lakhs per year for the next 30 years. That assumes a conservative annual return of 8.5%.

If you can invest this much, start with this amount and stop investing when you reach your objective. If your existing capacity permits a smaller quantity of investment, you will need to raise it later.

Maintaining your tax-exempt status for ULIP investments is simple. All you have to do is ensure that the policy sum assured or life coverage is at least ten times the annual premium. For example, in our instance, the policy must have a minimum life cover of Rs. 18 lakh.

Why invest in a ULIP plan as your investment option?

A ULIP plan, one of the best investment plans in India, can be an effective long-term investing strategy for a variety of financial objectives. Furthermore, it protects your loved ones during your absence. Here are some features of having a ULIP plan that make them appropriate for long-term needs:

They provide rewards for staying invested: The longer you invest in a ULIP plan, the bigger your earnings can be. Your invested capital not only benefits and multiplies due to the compounding effect, but it also grows through loyalty additions. As a reward for long-term investment, insurance companies provide assured additions and wealth boosters. This boosts your total portfolio by ensuring higher profits.

Tax benefits allow you to save more: ULIPs provide tax benefits on premiums paid under Section 80(C) and maturity benefits obtained under Section 10(10D). However, keep in mind that, according to the 2021 budget, ULIPs are capital assets, just like other mutual funds. As a result, the returns from a ULIP will be considered a capital gain, and you will be subject to long-term capital gain tax on ULIP. This only applies to the returns received, not the ULIP death benefit given to your family. So, when planning for your long-term needs, consider the tax implications, just as you would with other assets.

They allow you to manage your risk: Over time, the market can fluctuate and shift dramatically, and ULIPs provide fund-switching choices that allow you to capitalize on this volatility factor. You can choose between equities, debt, and balanced funds based on your risk tolerance and the market. You can make many switches during the course of your policy's term. This enables more earnings. For example, if the market rises, you can invest in debt funds; if the market is declining, you can invest in equity funds.

ULIP insurance covers your family members: The insurance component safeguards your family members in your absence. The life insurance policy assures that, regardless of life's unforeseen turns, your loved ones are always financially secure and well-prepared to meet their needs and live happily.

So at last,

Certain financial goals are inevitable and yet are ignored by many. Retirement is one such financial goal that one shouldn't ignore. If you have not started planning for your retirement, perhaps now is the time to start. There are many investment plans in India such as PPF, gold investment, mutual funds, ULIP, etc. Unit-linked insurance plans allow you to provide insurance to your family and investment at the same time for a retirement bonus.