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How Does A Life Insurance Policy Help In Retirement Planning?

Understanding the various features of each specialised insurance retirement plan is vital.

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Outlook Money
December 9, 2023
Life Insurance Policy Help In Retirement

Life Insurance Policy Help In Retirement

For most people in India, a life insurance plan is an assurance of financial security for self and family, regardless of age, once the policy kicks in. It is also a ticket to financial freedom in old age, depending on your choice of product, requirements, and premium-paying ability. The USP of these plans is the immense growth potential of your investments without having to invest your time in managing the portfolio. Based on your requirements, the fund manager takes care of that on your behalf. With the profusion of life insurance products in the market today, the overreliance on traditional pension plans through employers has been on the wane.

A Life Insurance Policy Help In Retirement Planning for lower or middle-income people, although a large group in India may still have been left out of this coverage. This section of the population might need a life insurance policy more than someone extremely rich. Life insurance could be a top priority for the middle-income group. At the same time, the rich may have multiple other options to care for retirement or their family’s financial security. So, the need for a policy in a retirement plan will vary according to their financial situation.

Interestingly, as the GenZ population continues to grow and requirements become more diverse and demanding, there is a product to choose from to fulfil every customer’s expectation. With the explosion of life insurance products flooding the market, from flexible premium-paying terms and withdrawal facilities to payment-delivery options, understanding the advantages and disadvantages of each of these specialized insurance plans has become equally important.

What Is A Life Insurance Retirement Plan?

It is an insurance policy where the individual makes regular financial contributions to help them meet their post-retirement expenditures. Generally, most retirement plans have two components: accumulation and distribution. In the first part, the individual contributes a fixed sum of money towards the policy for a set duration. The fund managers then invest the money in various market-linked growth instruments, like equities and mutual funds, to accumulate capital. In the second stage, the fund manager or the policy returns the money with profits accrued to the policyholders in instalments, monthly, quarterly, or even annually or a lump sum at maturity.

What Are Different Retirement Plans?

Likewise, retirement insurance plans are of two types: deferred annuity and immediate annuity.

The deferred plan allows the policyholder to accumulate funds through a regular fixed premium over a set tenure. The subscriber gets tax benefits on the amount invested until withdrawn, besides pensions at maturity. However, one can pay the premiums in one go. In the immediate annuity plan, the assistance starts immediately. It begins as soon as the first instalment goes. The invested amount is also tax exempted under Section 80C of the Income Tax Act, 1961.’

Whole Life Insurance Plan: This plan offers the policyholder insurance coverage for an entire life. If the policyholder dies, the insurance company pays the assured sum and bonuses to the nominee. Or else the policyholder receives an endowment sum at maturity. They can also withdraw the money regularly after the premium payment term ends, allowing them to meet their post-retirement expenses.

Finally, regardless of what you pick from the available options for your life insurance plan, an early start will give you the advantage of accumulating more wealth for retirement. The thumb rule is that the more you invest, the more you gain from your investments. So, what better way to start that journey early than to look for shortcuts that may burn a hole in your pocket?

 

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