How an insurance policy can help you plan your retirement?

With India’s average age of less than 25 years, retirement might seem far away. However, with a rise in average standard and cost of living, medical inflation, etc. retirement is a phase that needs careful planning and precision so as to ensure that there is no compromise on the overall post-retirement lifestyle and expenses.

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

The bigger question is, is everyone planning their retirement? According to the PGIM India Mutual Fund Retirement Readiness Survey 2020 in association with Nielsen, only 51 percent of the people have planned their retirement with some alternate income. More than 59 percent of their income is allocated towards current expenses and childcare and spouse security, even lifestyle and fitness rank higher in priority than retirement!

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

Life insurance pension plans – the perfect retirement planning tools

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

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

1. Deferred annuity plans

Deferred annuity plans, also called deferred pension plans, help you create a retirement corpus. Under these plans, you get an accumulation phase over which you can pay the premium and create a corpus. Then on vesting age, i.e. the age you choose to start your pension, you have a choice. You are allowed to withdraw or commute up to 60 percent of the accumulated corpus in a lump sum, of which 33 percent would be tax-free in your hands under section 10(10) A. The remaining amount would be utilized to provide pension to you according to your choice.

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

Tip: Deferred annuity plans help you create a lifelong retirement corpus that can provide you with benefits as long as you live and sometimes even afterward.

2. Immediate annuity plans

Immediate annuity or pension plans aim to create a steady, guaranteed and lifelong source of income. Under these plans, you pay a lump-sum premium to buy the policy. Thereafter, pension payments start immediately from the next month, quarter, half-year, or year depending on the frequency you choose. There are several types of pensions like life annuity, joint-life annuity, an annuity with return of premium option, etc. for you to choose from.

Tip: Immediate annuity plans are the best solution if you have a retirement corpus and you wish to receive guaranteed income for the rest of your life without having the worry to manage the same!

Pension Plans also have a unique benefit. You can leave behind an income legacy for your surviving spouse as long as he or she is alive. Or you can leave behind your erstwhile retirement corpus as a gift to your child or heir, after death.

Health insurance plans – a cover for medical needs post-retirement

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

Since most health plans can be continued forever, you can continue the coverage post-retirement as well and enjoy coverage for your medical expenses. However, if you had not invested in a health insurance plan earlier, you can opt for senior citizen health insurance plans for the old age medical requirements. These plans are specially designed for people with pre-existing ailments or OPD coverage, etc. which might be a requirement in the post-retirement phase of life!

The Tax Advantage:

Insurance policies are an effective tax-planning tool as well. Premiums paid for deferred pension plans earn you a deduction under Section 80CCC of the Income Tax Act, 1961 up to Rs 1.5 lakh a year. Premiums paid towards your health insurance are also tax-free up to Rs 25,000 if you are below 60 years of age under section 80D and up to Rs 50,000 if you are 60 years or above. These deductions lower your tax liability while the plans provide financial security.

Bottom line:

Both wealth and health can be taken care of simultaneously with annuity and health insurance plans. If leaving behind a legacy is your dream, the same can be fulfilled when your funds are protected against medical contingencies. So, plan your retirement with insurance policies and create a secured future for yourself.