How To Enhance Your Retirement Plan With Life Insurance

Every working individual dreams of stress-free and peaceful retirement life. Happy retirement life needs careful and advanced financial planning to build a sufficient corpus to ensure financial stability post-retirement. To maintain the same lifestyle and to meet all the emergency requirements, you need to invest and save for retirement living in a disciplined way. There are various financial products available in the market for long-term goals like retirement planning. Life insurance is one such financial product that can help you plan for your retirement.

When we say life insurance, many people think that life insurance is only purchased to avail financial protection for loved ones during an unforeseen situation like the untimely demise of the policyholder. However, there are life insurance plans that are offered by the life insurance companies to meet various needs of the investor along with providing life cover. There are many life insurance cum investment products offered by these insurance providers that are specifically designed to meet long-term goals like retirement, children’s higher education, etc. Let’s take a look at the life insurance products that are suitable for retirement planning and how you can use them to create a significant corpus for your golden years.

Life Insurance Plans for Retirement

The following are the life insurance plans that can be used for retirement planning:
1. Retirement Plan/Pension Plan
Retirement life insurance plans are life insurance plans that are tailor-made to meet your retirement needs. Retirement life insurance plans are a disciplined way of saving for your retirement life that helps you retire without worries. Most retirement plans come with the benefit of both life cover and vesting benefits to receive the pension post-retirement. In a retirement plan, you make premium payments on a regular basis till the date of vesting or for the premium payment period as per the policy terms. The amount of premium that you pay gets invested in building a significant corpus for your retirement life. Basically, retirement plans have two phases:

• Accumulation phase: In the accumulation phase, you pay the premium, which gets invested depending on the type of policy. If the pension plan is a traditional insurance plan, then the premium would be invested in bonds and government securities. If it is a unit-linked pension plan, then the money would be invested in various fund options to offer you a market-related return. In the accumulation phase, your investment grows, and the retirement corpus is created at the end.


• Annuity phase: The second phase is the annuity phase, wherein you start receiving the pension on a regular basis. On the date of vesting, you can withdraw 1/3rd of your retirement corpus and commute the rest of the corpus to buy an annuity plan to receive a steady income or pension on a regular basis to meet your retirement needs.

Retirement plans or pension plans also offer life cover that gives financial protection to your family even when you are not around in this world by making a lumpsum benefit payout during an unfortunate situation. Pension plans are specifically designed to provide you with steady cash flows. You can choose the pension frequency- monthly, quarterly, half-yearly, or yearly as per your convenience and need.

2. Unit Linked Insurance Plan (ULIP)
Unit-linked insurance plan (ULIP) is a market-linked insurance product that is hybrid in nature. This gives you the benefit of both life protection and wealth creation by investing in various securities through funds. You can invest in funds and choose the asset allocation based on your risk appetite and investment preferences. As ULIP allows you to invest in the market, you can maximise your investment return over the long term to build a sufficient amount of retirement corpus for yourself. Life cover offered by the ULIP protects your family during eventualities. ULIP comes with many unique features and flexibility, such as switch option, partial withdrawal, etc., which helps you plan your retirement at your convenience.

3. Endowment Plan
Endowment plans are life insurance products that offer the benefit of long-term savings. Part of the premium that you pay for life insurance provides you with life cover, which offers the death benefit in case of eventualities during the policy term to your loved ones. And the rest of the premium is invested in government securities and bonds to create wealth for your future which can be utilised as a retirement corpus. In an endowment plan, if you survive the policy period, the survival benefit will be paid to you at the end of maturity, which includes the sum assured and the bonuses. This lump sum maturity benefit can be utilised as a retirement corpus.

4. Whole Life Insurance Plan
A whole life insurance plan provides financial protection to the policyholder’s family throughout the policyholder’s life or up to 100 years of age. That means the policy provides life protection even after the maturity of the policy. If the policyholder survives up to the age of 100 years, endowment coverage is paid as a survival benefit. These long-term plans can be used to create wealth for retirement.
Every life insurance plan comes with a variety of additional benefits or riders, which can be availed at an additional cost of the premium to enhance the coverage benefit. While saving for retirement, you can even opt for riders like critical illness rider, accidental death benefit rider, accidental disability benefit rider, income rider and waiver of premium rider, etc. You can enhance your investment in life insurance by availing the suitable riders.

Use of Life Insurance Plans for Retirement

Here is how life insurance is useful for retirement:

• Retirement insurance plans offer regular steady income:
  Pension plans offered by insurance companies, traditional plans, or unit-linked pension plans offer the benefit of the regular steady flow of income after the retirement age to lead a peaceful and worry-free financial life. Cash flows can be helpful to maintain the same lifestyle and meet urgent needs, if any. A steady flow of income post-retirement is crucial to maintain financial stability.


• Insurance plans are for the diverse risk profile:
  There are life insurance plans that offer the benefit of life protection and savings/investment option suitable for various types of investors. For example, you can choose to invest in endowment plans that come with guaranteed³ benefits if you are a conservative investor. You can choose to invest in aggressive funds of ULIP if your risk-taking ability is high and you are seeking higher returns over the long term. You can choose the life insurance plan based on your risk-taking ability.


• Life insurance plans follow a disciplined investment approach:
  When you choose to invest in life insurance plans for the long term, you would need to pay premiums on a regular basis which makes you a disciplined investor. Investing regularly for your long-term goals, like retirement, which is decades away, brings discipline to your investment approach. However, there are single premium plans also available for investment.


• Life insurance is a tax-efficient long-term investment:
  Investing in life insurance provides tax benefits² under Section 80C of the Income Tax Act of 1961. Also, the exemptions can be availed under Section 10 (10D) and Section 10 (10A) of the Income Tax Act, 1961, depending on the life insurance product you have chosen for investment. Hence, when it comes to long-term investments, life insurance is definitely one of the tax-efficient investment options one can choose for retirement.

Apart from term insurance plans that offer pure life protection to your loved ones against the uncertainties of life, there are investment-oriented life insurance products that you can consider to invest for your long-term goals, like building a retirement corpus. You can compare the plans online and choose the best suitable life insurance product to invest in for your retirement goals based on your investment preference. Plan for your retirement in advance and start investing early to build a significant retirement corpus.