5 Ways Unit Linked Insurance Plans Reward Long-Term Investors

2024-08-02

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In the world of investment or otherwise, those who stay longer are rewarded better than short-term investors. Unit Linked Insurance Plan is no exception to this rule. In fact, ULIP plans have features to reward investors who stay invested for a long time.

Here are five such features of ULIP insurance plans which reward the long-term investors:

1. Meet Multiple Goals Using Partial Withdrawals

Long-term investors can use ULIP’s tax-exempt withdrawal facility after the lock-in period of five years. Partial withdrawal facility helps you use a single ULIP plan to invest in and meet multiple financial goals over time.

However, investing regularly and for a long-time is important to achieve better results. ULIPs have multiple fund options and for the best growth, you should smartly allocate a part to equity growth funds.

Once your corpus has grown significantly you can start withdrawing the money to meet your goals, within the policy tenure. You can keep investing at the same time to keep adding the boosters to your corpus.

2. Loyalty Additions

Loyalty additions are bonus units credited to your account every few years provided:

You have been paying the premiums regularly
You stay invested for more than five years (lock-in period)

Loyalty additions are one of the direct benefits you receive for your discipline and persistence with your investments. Invest 4G plan allows loyalty additions after completion of every five years of investment.

3. Wealth Boosters

Wealth boosters, like loyalty additions, are added benefits which boost your portfolio value if you stay invested long enough. Both wealth boosters and loyalty additions increase the number of units in your portfolio.

With Canara HSBC Life’s Invest 4G plan wealth boosters start improving your corpus from the 11th policy year onwards, provided:

You have been investing regularly and
The policy has not paid a death claim

4. Premiums Returned

Regardless of how markets performed and where your investment value stands, ULIPs protect your investment in your family’s financial goals. While you have a large sum assured in the policy, your premium payments are likely to surpass the sum assured in the long run. But the ULIP will always have your back with the following rule:

“A ULIP will pay at least 105% of the total premiums to your family upon your demise within the policy term.”

For example: If you start investing Rs. 100,000 a year in a ULIP, your available life cover in the policy will be Rs. 10 lakhs (10 times the annual premium). Assuming that your policy tenure is 20 years and you will keep investing throughout the policy tenure, you will exceed the sum assured within 11 years; i.e. you will invest Rs. 11 lakhs in the plan in 11 years.

If you, unfortunately, meet your ultimate fate after the 11th premium payment, your family will receive at least Rs. 11.55 lakhs, regardless of the value of your funds in the plan. If your fund value is higher than Rs. 11.55 lakhs, the family receives the fund value as death claim.

Canara HSBC Life’s Invest 4G ULIP plan even have the option to continue your policy as planned with premium funded by the insurer. So, your family can still achieve the goal you intended in the beginning. In this case, as well, your family receives the higher of the following upon your demise:

The Sum Assured
105% of Total Premiums Paid

5. Portfolio Management for Safety & Return

ULIPS have multiple portfolio management strategies which can offer you the safety of returns and capital. You can choose these strategies depending on your risk appetite. However, one thing goes without saying that, the more time you give to your investment the better it is.

For example, the Invest 4G plan has four portfolio management strategies you can choose from:

Systematic transfer option: Invests your annual premium in a liquid fund and then transfers a fixed number of units to equity fund every month. Provides rupee cost averaging to your equity allocation, even if you are investing once a year.
Return protector option: You can choose the return you want to secure for your investment. This strategy will harvest the growth as soon as the portfolio return touches the threshold throughout the investment period.
Auto fund rebalancing: This is useful for those investors who are aware of their risk appetite. You can fix an asset allocation ratio between equity and other funds. For example, if you fix the asset allocation at 50:50 between equity and debt, the portfolio will keep rebalancing regularly to meet this threshold.
Safety switch option: This strategy is useful if you want to aggressively accumulate money through the investment period. As your investment reaches close to maturity (or near to goal) the money is transferred to liquid fund gradually over four years before the maturity.

The first three strategies are for you to accumulate the corpus and grow it ensuring the safety of capital and return. The fourth strategy, however, specifically works in the final four years of your investment period to secure your accumulated wealth in the plan. You can use the fourth strategy with any of the three portfolio management options as well.

ULIPs are Made for Long-Term Investment

ULIPs are one investment option which is made for long-term investors. If you think of growth, and safety ULIPs can offer both efficiently. Added to all the features and advantages you have with a unit-linked insurance plan is the tax efficiency.

You can switch your funds from equity to debt and vice versa numerous times throughout the policy period without a single tax incident. While maturity value is fully tax-exempt, premiums help you reduce your taxable income by up to Rs. 1.5 lakhs every year.

Just make sure the life cover sum assured you chose, in the beginning, is at least 10 times of your annual premium. Or, in other words, you can invest a maximum 10% of the policy sum assured every year in ULIP and keep your investments tax exempt.

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