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How to Use Different Types of Life Insurance for Retirement Planning

Buy Life Insurance Now How to Use Different Types of Life Insurance for Retirement Planning

Planning for the post-retirement years is very important, as it ensures financial freedom. Moreover, with proper planning, you will not have to compromise on your lifestyle during the senior years.

Life insurance is an integral part of planning for your retirement. You may choose from several types of insurance plans to secure your golden years. Here are four types of life plans that are advantageous in securing your financial freedom post-retirement:

Four types of Life Insurance for Retirement Planning:

1. Retirement plans

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

  • During the accumulation phase, you pay the premium during the policy term. This money is invested in different securities. Over time, these investments earn returns to provide a sizeable corpus.
  • In the annuity phase, you can enjoy the returns on investments made during the first phase. You earn a periodic income either at the time of retirement or on the maturity of the policy. 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.

The annuity plans pay the pension as per your chosen option, which may be monthly, quarterly, bi-annually, or annually. It is recommended you include annuity plans in your retirement planning.

2.Endowment plans

Another option for life insurance for retirement planning is an endowment policy. These plans allow you to accumulate savings in the long-term while offering life cover. If you survive the policy term, you receive the maturity benefits. However, in case anything untoward happens before the maturity date, the death benefits are paid to your beneficiaries.

Endowment plans provide the option of earning bonuses at periodic intervals. These may either be paid at the time of maturity or to your beneficiaries while determining the death benefits.

3. Unit-linked insurance plans (ULIPs)

ULIPs combine life cover and investments. A portion of the total premium is used to provide life coverage. The balance is invested in different instruments such as equities, mutual funds, debt instruments, and bonds.

The allocation in different securities is based on your requirements. Moreover, the insurer considers your risk profile while investing the premium amount.

4. Whole life plans

These types of insurance policies offer coverage for life or until the age of 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 in insurance plans is advisable. Such policies also provide the option of partial withdrawals or regular payouts once the total premium paying term is over, which is 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. However, other instruments like equities and mutual funds have greater risks.

The other option is to use life insurance for retirement planning and secure your financial freedom. To maximize the benefits, it is recommended 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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