How can you Plan your Life after Retirement with Life Insurance?

  • June 11, 2024
  • Dushyant Sharma
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The post-retirement phase is one of the most important and exciting phases in an individual’s life. However, many individuals dread this phase since after retirement, a lot of individuals become financially dependent on others. But this does not necessarily need to happen since individuals can invest in life insurance policies which can guarantee them financial support in order to lead a retired life comfortably.

 

In this article, we will discuss how you can plan your life after retirement with life insurance.

How can Life Insurance help with Retirement Planning?

By investing their money in a life insurance policy, individuals can ensure financial support after they have retired from their jobs. As a result, they do not have to be financially dependent on anyone after retirement. 

The Life Insurance can help with retirement planning through the following ways:

Life Insurance allows for a regular income for individuals post their retirement

There are various types of life insurance policies which provide a regular source of income for the individuals who are in their non-working years. They ensure that the individuals have financial support which they can rely on in their older years. Retirement or annuity plans can be appropriate for all the retirees, regardless of the income group, as these plans convert the savings they pay in the form of premiums into regular lifelong income. In addition to this, most retirement plans offer loyalty additions and bonuses which help boost the retirement fund corpus of the individuals.

Life Insurance policies are low-risk policies

The retirement phase is very different from your working years. As there is an active source of income, the risk appetite of the individuals drops majorly. Because you have a limited amount of savings, it is essential that you use them correctly without making any losses due to market’s volatility. 

 

Retirement plans, which are a category of life insurance plans, are considered as fairly low-risk options which offer protection of term plans and assist you in building your wealth. In such plans, the payouts are often guaranteed which assures that you get to lead a stress-free life (as you know that you have sufficient money for covering your expenses).

Retirement Plans falling under the category of Life insurance follow a disciplined approach

It does not take a mathematician to realize that the earlier you start investing, the more time your money gets to grow. The retirement plan works in a similar manner. With retirement plans, you need to make the payment of premiums in a regular and disciplined manner which helps you to ride out the ups and downs of interest rates and the markets, and allows you to make your wealth grow.

 

Not only do the life insurance retirement plans help you to build a sizable corpus to maintain your life after retirement, they also help you to build a safety net in case of financial contingencies. The retirement plans offer the individuals the option of choosing the premium payment’s term. Additionally, they also have the option of choosing how they want to receive their payouts once they retire (whether they want to claim the entire amount at once, or a certain amount on a monthly basis).

Life Insurance helps you to be Financially Independent and Self-reliable

Even if your children are doing really well, it is always necessary to be financially independent. The Covid-19 pandemic has taught this lesson to us. Many people were unemployed or lost their jobs during the pandemic, and could not support themselves financially, let alone their parents. 

 

A life insurance plan serves as a financial companion in retirement and helps you to become financially independent, so that you do not have to rely on someone else for your basic needs. 

Life insurance can help you in covering your medical expenses

As you age, your body becomes weaker and more prone to diseases. Medical expenses are a primary cause of concern for most retirees. However, life insurance payouts can help you to make sure that these expenses are taken care of. 

The payouts can not only help in times of medical emergencies but also ensure that you can avail proper preventative care to lead a healthy life post your retirement.

Life Insurance allows Tax-saving

Under Section 80C and Section 10 (10D) of the Income Tax Act, 1961, several tax benefits are offered on life insurance policies. This allows individuals to maximize their retirement savings and lowers tax burden substantially.

What are the different types of Life Insurance Plans for Retirement Planning?

There are different types of life insurance plans available in India, so that you can make the most of your retirement. Some life insurance plans which you can opt for retirement planning are:

  • Retirement Plans
  • Endowment Plans
  • Unit Linked Insurance Plans (ULIPs)
  • Whole Life Insurance Plans

Let’s discuss these plans in detail and understand how they can help the individuals in planning their retirement.

Retirement Plans

As the name suggests, retirement plans are created for the individuals so that they can meet their financial needs once they retire. The government pension plans are more-pocket friendly for the individuals who start at an early age. 

 

Here is how the retirement plans work: There are two phases, namely the accumulation phase and the annuity phase.

  • Accumulation Phase: This phase refers to the first phase of your retirement insurance plan. You are expected to pay premiums throughout your policy’s tenor in this phase. Your premiums are collected by the insurance company you have purchased the insurance policy from after which it invests the amount in a variety of securities and allows your investments to grow as your cumulative capital.
  • Annuity Phase: This is your retirement plan’s second phase. In this phase, the seed of your investment blossoms and you start receiving returns on your investments. Once your policy matures (after you retire), you are eligible for receiving a regular income. Generally, the life insurance companies tend to structure the vesting age of the policyholder between 50 to 70 years. During the annuity phase, you can withdraw some amount of your fund, as allowed by your policy, while the rest of the amount can be availed in the form of installments. 

Based on the payout annuity mode you have chosen, the annuity plans pay your pension through an annuity option. This annuity mode can be quarterly, monthly, health-yearly or yearly. Your monthly or quarterly cash flow is regulated by a retirement plan once you retire.

Unit Linked Insurance Plans

ULIP, short for United Linked Insurance Plan, combines the benefits of an insurance plan and an investment plan. In a ULIP, part of your premium is used for providing a life cover as mortality charges, while the rest of the amount is invested across various funds. 

 

The funds can be allocated by you depending on your risk appetite. You can choose to invest in equities, debt, bonds, hybrid funds or market funds. ULIP ensures the accumulation of your wealth through investments and at the same time, it also ensures that your loved ones are secured with a death benefit.

Endowment Plans

Endowment Plan is another type of retirement insurance plan. It provides you with the option of saving for the long term. To add to this, a part of your premium is used for giving you a life cover. 

 

A maturity benefit or survival benefit is paid by the insurance company to the policyholder who survives the policy’s term. However, if the policyholder passes away due to an unfortunate event, a death benefit is paid to the nominee by the insurance company. There is a likelihood that under an endowment plan, an individual can claim bonus payouts periodically that are paid to the policyholder upon the plan’s maturity, or to the nominee under a death claim. 

Whole Life Insurance Plans

A whole life insurance plan covers the individual for a longer period compared to a standard life insurance. The whole life insurance’s policy tenor generally lasts until the policyholder turns 100 years of age. If the policy hasn’t matured and the life assured passes away, the sum assured along with any assured bonuses are paid to the nominee or the beneficiary. 

 

In case the life assured survives the policy term and turns 100 years of age, he is eligible to receive a matured endowment coverage paid by the insurance company. Once the premium payment term is completed, whole life insurance plans generally allow the individuals to make partial withdrawals or regular payouts which can be really helpful for individuals after they have retired.

 

Note: We have explained the various types of life insurance plans for retirement planning. However, it is advised to consult with an insurance agent to learn about these plans in detail.

Conclusion

If you want to have a retired life which is peaceful and stress-free, retirement planning is crucial. Before choosing which type of life insurance plan would best suit your needs, you must make sure that you are well-aware of all the features of the various types of life insurance policies available in India for retirement planning. 

 

You must make an informed decision before selecting the life insurance policy which meets your financial goals after retirement. The life insurance policy must only be purchased after you have cross-checked that the insurance company possesses a valid IRDA license


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Dushyant Sharma
Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.

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