How to plan your retirement with your life insurance policy? – Advisor Forbes INDIA


A typical retirement plan in India has been the younger generation caring for their elders after retirement for decades. With a change in lifestyle came the urgency and need to create a solid retirement plan for all individuals and your insurance policy could help you build that corpus.

By 2050, the number of people over the age of sixty will significantly exceed the number of people under the age of fifteen in India. This implies that social security and taking care of the needs of seniors must be essential today to meet the needs of the population in thirty years.

Let’s see how you can make your retirement planning more thorough.

What makes retirement planning essential?

There are 4 key dynamics that should get everyone thinking about retirement planning to become financially independent:

Gone are the days when the word death was part of the lexicon at the age of 60. Improved medical science has increased the average life expectancy in India from 49.7 years in 1970-75 to 68.7 years in 2012-16. However, while lifespan has increased, working life has not. If retirement is not well planned, you may outlive your savings.

Do you remember the price of a thermometer 30 years ago? Maybe not, but you definitely need to anticipate and plan the price of a thermometer 30 years from now. The fact is that inflation in the field of health – prevention, diagnosis and treatment – will increase exponentially.

Several studies have pegged medical inflation in India in 2019 at a range of 7% to 9%. The pandemic and the cost of prevention and cure is a final example. Moreover, with age, medical costs will also continue to increase.

It is important to recognize that India is undergoing a transformation of its socio-economic fabric. Earlier children cared for elders due to the widespread incidence of joint family systems, common source of income (family business), etc. Today, individuals increasingly yearn for a period of retirement where they do not need to depend on members for basic necessities.

  • Desire to pursue passion projects in retirement

Retirement is the harbinger of new beginnings. It’s no longer about hanging up your boots. In addition to leading a comfortable life and spoiling your grandchildren, you may also want to take up new hobbies, travel and give back to society, for example through charity.

In such a scenario, the astute need to plan for retirement becomes relevant very early in life. It can start with 4 basic steps.

Retirement planning steps

  • Determine current and future expenses

Chalk out current and future needs and determine associated expenses. Remember that the need for medical assistance increases with age. Thus, total health expenditure as a percentage of total income will increase, precipitating the need to set aside some money for medical expenses.

  • Assess current and future income

Determine the amount of money that can be allocated from current income toward retirement planning. Also, consider future resources like income from a part-time job.

  • Assess current assets and investments

Evaluate the current investment portfolio and determine the potential income it can generate during the retirement years.

  • Arriving away from the “needs” of retirement

It is the difference between the amount of money needed to lead a comfortable life in retirement and the amount of money currently available to meet that need. The retirement needs gap gives a clearer focus to retirement planning by creating a measurable goal.

Calculation of an ideal investment plan for retirement

Have you thought about the income needed to live the ideal life in retirement? The rule of thumb is that after retirement, to maintain a similar lifestyle, you would need 70% to 80% of the pre-retirement money. For example, if your monthly expenses are INR 100,000, you may need INR 70,000-80,000 per month when you retire.

  • Your retirement planning, with clear and measurable goals, should ideally begin as soon as you begin your earnings journey.
  • Start by investing a small proportion of your total savings in retirement.
  • This proportion may increase as you age and meet your short-term and long-term financial goals and family responsibilities.

The graph below shows an indicative allocation to savings.

The best plans

It is important to create a well-diversified portfolio, spread across several asset classes and instruments, including equities, debt and insurance, which facilitate wealth creation and savings.

In the short and medium term, you can opt for bank term deposits and mutual funds. For the long term, there is the National Pension Scheme and life insurance.

Key Benefits of Life Insurance as a Retirement Tool

Life insurance offers benefits such as stability and protection, a regular and guaranteed income during the retirement years and also, flexibility with facilities such as top-ups.

Key benefits of using life insurance to build your retirement plan include:

Insurance is a long-term product that guarantees benefits for 25 to 30 years. It is the only instrument in your financial portfolio that offers assured benefits and regular investments, with insurance companies absorbing the long-term reinvestment risk.

  • Instills financial discipline

Insurance instills financial discipline as it allows for regular investments. While everyone wants to secure their retirement phase, not everyone has the discipline to save.

Insurance is an ideal retirement planning instrument for people with a low appetite for risk and those looking for a secure income. There are several options that offer either guaranteed minimum amounts plus a bonus or a fully guaranteed amount.

  • Versatility to invest in stock markets

People with a higher risk appetite can opt for market-linked plans such as unit-linked insurance plans or ULIPs. These allow savings in the earning phase and withdrawals in the non-earning or retirement phase.

Many insurance plans offer income options during non-income years, such as ULIPs available to age 90 with withdrawals or whole life plans with built-in repayment or income plans where there is exempt income tax payable.

Ways to use your life insurance for retirement

You need to plan for two stages of life. The phase where you earn and save for retirement, that is, the accumulation phase and the phase where you derive income from the accumulated wealth.

Saving for retirement or the accumulation phase

  • If you are considering life insurance coverage as well as survivorship and maturity benefits, you can opt for whole life insurance plans.
  • If you have a low appetite for risk and are looking for insurance and defined tax advantages, you can opt for endowment plans that offer either guaranteed minimum amounts and bonuses (participating endowment plans) or an amount fully guaranteed (non-participating endowment plans). .
  • If you are in the upper quadrant of the risk and reward matrix, you can invest in ULIPs. These market-linked plans allow you to save for retirement while giving you the luxury of withdrawing, tax-free, planned expenses, such as children’s college education, wedding expenses, and more.

Phase where you use the funds for income during retirement

Once retired, you benefit from the capital accumulated during the savings phase. This is where you actually earn regular income so that your retirement years are as sweet as you want them to be. A product in this bucket is the annuity product.

Annuity plans

Annuities are specially designed by insurance companies to provide you with guaranteed income during the retirement period. Since an annuity plan is for life, it protects you from the survival of your savings. Some attractive variations include:

  • Reimbursement of the purchase price on the death of the policyholder to the agent
  • Joint and survivor annuity in which the spouse continues to receive income after the death of the primary policyholder.
  • You have the option of investing in an annuity with your retirement savings. This is called immediate annuity where you can receive the pension within one year of paying the premium amount.
  • You can opt for a hybrid mode, that is to say an accumulation and income plan which allows you to save the years of income and of income the years without income. The insured can indicate the frequency on which he wishes to receive the annuity from the insurance company.
  • People who still have a few years left before retirement can choose these deferred annuity plans.


Every individual should take advantage of insurance for retirement. This trifecta of assured benefits and a comfortable retirement life, financial stability that comes with disciplined and regular investments and protection makes life insurance one of the most convincing to create a solid investment plan for retirement.


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