How can an insurance policy help you plan for your retirement?


Written by Dhirendra Mahyavanshi

With India’s average age under 25, retirement may seem a long way off. However, with the increase in the average standard and cost of living, medical inflation, etc., retirement is a phase that requires careful and precise planning in order to ensure that there is no compromise on lifestyle and expenses after retirement.

Staying healthy and fit is non-negotiable, but it does not guarantee zero medical assistance. Planning your retirement well is therefore essential.

The big question is: is everyone planning for retirement? According to the PGIM India Mutual Fund Retirement Readiness Survey 2020 in association with Nielsen, only 51% of people planned their retirement with alternative income. Over 59% of their income is allocated to living expenses and child care and spousal security, even lifestyle and fitness are a higher priority than retirement!

Although the numbers are grim, today’s millennials are gearing up to plan for retirement. They understand the need for a retirement fund and set aside money in different avenues to create a retirement corpus. Dependence on children for their old age is the fear in most people’s minds. This is where insurance comes in. It helps you plan your retirement effectively.

Life insurance pension plans – the perfect retirement planning tools

To help you with your monthly expenses in a post-retirement scenario, you can bank on annuity plans, offered by life insurance companies, regulated by the PFRDA (Pension Fund Regulatory & Development Authority).

There are two types of policies, each with a different purpose.

1. Deferred pension plans

Deferred annuity plans, also called deferred retirement plans, help you build a retirement corpus. Under these plans, you get an accumulation phase where you can pay the premium and build a corpus. Then, at the acquisition age, that is to say the age you choose to start your pension, you have a choice. You are permitted to withdraw or convert up to 60% of the accumulated corpus into a lump sum, 33% of which would be exempt from tax in your hands under Section 10 (10) A. The remaining amount would be used to provide a pension to you according to your choice.

Deferred retirement plans are available as endowment plans or unit-linked plans. ULIP is a better choice because you can create a market-related corpus that is also adjusted for inflation. In the event of death before vesting, a death benefit would be paid and the policy would be terminated.

Tip: Deferred annuity plans help you build a lifetime retirement corpus that can provide benefits throughout your lifetime and sometimes even beyond.

2. Immediate annuity plans

Immediate annuity or retirement plans aim to create a stable, guaranteed source of income for life. Under these plans, you pay a flat premium to purchase the policy. Thereafter, pension payment begins immediately from the following month, quarter, semester or year depending on the frequency you choose. There are several types of annuities such as the life annuity, the joint and survivor annuity, the annuity with the option of reimbursement of premiums, etc. from which you can choose.

Tip: Immediate annuity plans are the best solution if you have retirement capital and want to benefit from guaranteed income for the rest of your life without having to worry about managing it!

Retirement plans also have a unique advantage. You can leave a legacy of income to your surviving spouse as long as they live. Or you can leave behind your old retirement capital as a gift to your child or heir after your death.

Health insurance plans – coverage for medical needs after retirement

The other very important factor to consider in your life after retirement is planning for your health insurance. Health insurance plans also help you lead a financially comfortable retirement life by taking care of your medical needs in old age. This is where a strong and comprehensive high coverage health insurance plan with lifetime renewal comes in handy.

Since most health insurance plans can be extended indefinitely, you can also continue coverage after retirement and enjoy coverage for your medical expenses. However, if you had not previously invested in health insurance, you can opt for senior health insurance for the medical needs of old age. These plans are specifically designed for people with pre-existing conditions or OPD coverage etc. which might be a requirement in the post-retirement phase of life!

The tax advantage:

Insurance policies are also an effective tax planning tool. Premiums paid for deferred pension schemes earn you a deduction under Section 80CCC of the Income Tax Act 1961 up to Rs 1.5 lakh per annum. Premiums paid for your health insurance are also tax exempt up to Rs 25,000 if you are under 60 under Section 80D and up to Rs 50,000 if you are 60 or older. These deductions reduce your tax liability while the plans provide financial security.

At the end of the line :

Wealth and health can be supported simultaneously with annuity and health insurance plans. If leaving a legacy behind is your dream, so can when your funds are protected against medical contingencies. So, plan your retirement with insurance policies and create a secure future for yourself.

Dhirendra Mahyavanshi is co-founder of Turtlemint (an InsurTech company)


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