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LIFE INSURANCE

How to Use Life Insurance in Your Retirement Planning

Sumit Asrani Sumit Asrani 21 December 2017
3.0 (2 votes)

Life insurance is essential when it comes to your retirement planning. Understand about different types of life insurance that can help you in your retirement planning.

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Retire Rich. Stay happy.

But how?

There are various ways, of which one is to get serious about your retirement planning.

There are many types of life insurance policies to help you make the best of post retirement without worry.

Secure your retirement secretly: Use Life Insurance Plans

Life Insurance Plans to Look Forward in Your Retirement Planning

  • Retirement plans
  • Endowment Plans
  • Unit Linked Insurance Plan (ULIP)
  • Whole Life Plan

What is Retirement Plan and How Does it Work?

Retirement or Pension plans are especially designed to meet retirement needs. A retirement policy helps you to plan your retirement in a secured and pocket-friendly way. It helps you to retire happily.

Let us see how a retirement plan works.

There are two phases of any retirement plan. They are accumulation phase and annuity phase.

  • Accumulation Phase: The first phase, you pay premiums throughout the policy tenure. The insurance company collects the premium and invests in securities. Over a period, these investments grow and accumulates capital.

  • Annuity Phase: The second phase, annuity phase, where the seed of your investment blossoms. You start getting returns on your investment. On maturity of the policy or once you retire, you get a regular income. Life insurance companies structure the vesting age in between 50 to 70 years of the policyholder. During annuity phase, you can withdraw 33% of the accumulated fund at once. And the rest of the fund is used for buying an annuity plan.

Annuity plan pays you pension as per the annuity option and mode opted. Annuity mode can be monthly, quarterly, half yearly or yearly. This is a great way to get monthly or quarterly cash flow after you retire.

This way, you can take advantage of retirement plans.

What is ULIP and How Does it Work?

A ULIP plan is a combo of insurance and investment. The part of your premium is used for providing life cover (mortality charges) and the rest is invested in various funds.

The funds can be allocated as per your risk appetite. There are various investment options like in bonds, equities, debts, market funds, or hybrid funds.

Example:

TermSum AssuredAnnual Premium RangeBonus
30 yearsRs.10 lakhRs.20,000 – Rs.25,000Depending on the Bonus at the time of maturity.

What is Endowment Plan and How Does it Work?

Endowment plan gives you an opportunity for long-term savings. Plus, part of your premium is utilized to provide life cover. If the life assured survives throughout the policy term, on maturity, the company pays Survival/Maturity Benefit. And if the life assured dies during the policy period, the insurance company pays death benefit to the nominee. There is an opportunity to gain some extra bonuses periodically in endowment plans, which are paid either on maturity or to the nominee under death claim.

Example:

TermSum Assured (With Guaranteed Maturity Sum Assured) Annual Premium RangeBonus
30 yearsRs.10 lakhRs.20,000 – Rs.25,000Depending on the Bonus at the time of maturity.

What is Whole Life Insurance and How Does it Work?

A whole life insurance policy covers the life assured for whole life, or up to the age of 100 years. If the life assured dies before maturity, the sum assured along with bonuses (if any) is paid to the nominee. However, if the life assured survives up to the age of 100 years, the matured endowment coverage is payable to the life insured. Whole life insurance plans also offer partial withdrawals or regular payouts after completion of premium payment term which could help you post retirement.

Premium Paying TermSum Assured (With Guaranteed Maturity Sum Assured) Annual Premium RangeMaturity Benefit
20 yearsRs.3 lakhRs.10,000- Rs.15,000Guaranteed Sum Assured + non-guaranteed bonus (if any) + non-guaranteed terminal bonus (if any)

The Best Strategy to Use Life Insurance for Retirement

Get a term plan to get a life cover at the lowest possible premiums. This way, you will end up saving a lot of money on premiums. The saved amount on premiums can be utilized to invest in other financial vehicles to gain high returns. But, these high returns products involve high risks too.

The other way is, to choose any of the life insurance products and get straight with your retirement planning. Read more about different types of life insurance policies.

However, to get the best out of your Life Insurance Plans, you need to do the following:

Plan Ahead: Invest when you are still young. Look at this as a long-term investment opportunity. Because the longer your accumulation phase, your money would stay invested for a longer duration, which means you would get good returns during retirement.

Consider Retirement Cash Flow Requirement: Consider how much money would be enough to live the same lifestyle post retirement. For which, don't forget to consider inflation.

Know the right plan that suits you: There are many variants of retirement plans. Know them all, and select the best suitable plan.

All I wish, you retire without any worry lines. Retire rich and happy.

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3.0 (2 votes)
Sumit Asrani
Written by Sumit Asrani
He's a writer. His blood cells are woven with Hypergraphia, as he breathes in books, he exhales words and sneezes poetry. Captivated by the web-of-words he's trying to escape miraculously as a content writer at Coverfox.com.