How To Use Different Types Of Life Insurance For Retirement Planning?
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How To Use Different Types Of Life Insurance For Retirement Planning?

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How To Use Different Types Of Life Insurance For Retirement Planning?

Planning for your post-retirement years is very important as it ensures financial freedom. With proper planning, you will not have to compromise on your lifestyle during the golden period of your life. There are several options available today to assist you with your financial planning. In addition, there are several ways to build a secure future, from investing for wealth growth to protecting your loved ones’ financial well-being with insurance products. However, in your quest for prosperity, you must not overlook the need for safety. The foundation of a financially secure future is protection, which makes owning life insurance coverage critical.

Life insurance is an integral part of planning for your retirement. You may choose different types of life insurance policies to secure your golden years. Life insurance plans are primarily of two types, and it is obvious to ask what are the two main types of life insurance. The first kind is only concerned with risk mitigation, while the second option combines insurance and investment. The second broad category can be further subdivided into seven distinct insurance policies, which are as follows:

1. Term life insurance - Provide financial protection in the event of a disaster.

2. Whole life insurance - Provide coverage up to the age of 100.

3. Endowment plans - Provide both savings and life insurance benefits.

4. Money-back plans - Provide both a regular income and life insurance.

5. Retirement plans - Assist in accumulating a retirement fund for financial independence after working life.

6. ULIP plans - Provide the opportunity to earn market-linked returns on investment while also providing life insurance.

7. Child plans - Protect your child’s future in the event of a disaster, ensuring that their education is not disrupted.

However, not all of these policies are beneficial when it comes to securing your post-retirement life. So, mentioned below are the four types of life plans that are advantageous in securing your financial freedom post-retirement.

What are the 4 types of insurance?

What is a retirement plan?

Retirement plans with life insurance cover have two phases, that is the accumulation phase and the annuity phase.

  • During the accumulation phase, you pay the premiums during the policy term. This money is invested in different securities, and over time, they help you earn returns to build a sizeable corpus.
  • In the annuity phase, you can enjoy the return on investment made during the first phase. You earn a periodic income either at the time of retirement or on the maturity of the policy. Further, insurers allow you to withdraw up to 33% of the accumulated corpus as a one-time withdrawal. The balance is used towards acquiring an annuity plan to provide you with a regular income.
Different types of life insurance plans for retirement planning and how to choose the best for you

These annuity plans pay the pension as per your chosen option, which may be monthly, quarterly, bi-annually, or annually. Owing to the numerous benefits it offers, it is advisable that you include annuity plans as a part of your retirement planning.

What is an endowment plan?

Another option for life insurance for retirement planning is an endowment policy. These plans allow you to accumulate your savings in the long run while offering a life cover, wherein you receive the maturity benefits if you survive the policy term. However, in case anything untoward happens before the maturity date, the death benefit is paid to your beneficiaries. Endowment plans also provide the option of earning bonuses at periodic intervals.

Because they are not market-linked, endowment plans are sometimes known as traditional plans. While these are investment vehicles, their risk is significantly smaller than that of typical investment products. While more expensive than term plans, endowment plans can help you attain financial goals such as a child’s further education, marriage, home ownership, and so on.

What is a unit-linked insurance plan (ULIPs)?

The advantage of ULIPs is that they combine life cover and investments. A portion of the total premium is used to provide life coverage, and the balance is invested in different instruments such as equities, mutual funds, debt instruments, and bonds. The allocation is based on your requirements, and the insurer considers your risk profile while investing the premium amount.

What is a whole life insurance plan?

These insurance policies offer coverage for life or until the age of 99-100. If you do not survive the policy term, your beneficiaries receive the death benefits along with the accumulated bonuses. However, if you survive beyond 100 years, the insurer pays the endowment coverage as maturity benefits. Including whole life policies in your financial planning is always a good idea. Such policies provide the option of partial withdrawals or regular payouts once the total premium paying term is over. This acts as an advantage during the post-retirement years.

Some people may suggest buying a term plan that offers higher coverage for a lower premium. These savings may be invested in other instruments to earn higher returns. The other option is to use life insurance for retirement planning and secure your financial freedom. To maximise the benefits, it is recommended that you start early to build a larger corpus through the compounding effect.

Before deciding on the best insurance policy, it is important to determine the corpus needed by using a retirement plan calculator. While calculating this amount, ensure to include inflation. Plan and retire without worry.

- A Consumer Education Initiative series by Kotak Life

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