Planning for retirement is an important exercise for any individual. For it is this exercise, which can help the individual spend his golden years in peace and comfort.
There are various financial products available in the market today which help individuals plan for their retirement. A pension/retirement plan from a life insurance company is one such product.
Simply put, a retirement plan from a life insurance company helps an individual insure his life for a specified amount. At the same time, it helps him to accumulate a corpus, which he receives at the time of retirement.
This is similar to a regular endowment plan; but there are some key differences. An illustration will help in understanding this better.
Know what's in store
| Age (Yrs) |
Sum Assured (Rs) |
Tenure (Yrs) |
Annual premium (Rs) |
Maturity amount (Rs) |
| 30 | 500,000 | 20 | 21,991 | 1,074,000 |
The figures used in the illustration above are based on that of an existing life insurance company. The returns could vary across life insurance companies.
Please consult your life insurance advisor for further details
Suppose an individual aged 30 years, wants to plan for his retirement 20 years hence, while at the same time insuring himself for a sum assured of Rs 500,000. If he opts for a pension plan from a life insurance company, the premium he will have to pay is approximately Rs 21,991.
In case of an eventuality, his nominees will receive the said sum assured of Rs 500,000 plus the accumulated bonuses if any. The nominees also have the option of opting for an annuity. In case the individual survives the term, then he will receive the maturity amount as explained below.
Since this is a retirement plan, the individual will be allowed to withdraw only upto 1/3rd of the maturity amount as a lump sum. The same will be treated as tax free in the hands of the individual. He will have to invest the remaining amount in an annuity from any life insurance company.
This annuity will help in generating a regular income for the individual's retirement, post-maturity.
This concept is different from an endowment plan's maturity treatment. At the time of maturity in an endowment plan, the individual simply receives the entire maturity amount in one go.
However, as seen above, a life insurance company manages the individual's annuity, and provides for a steady source of income for the individual. This is in addition to the amount (i.e. 1/3rd of the maturity value) that the individual is allowed to withdraw at the end of the policy tenure.
Unit linked retirement plans are also available with most insurance companies. Unit linked insurance plans (ULIPs) have become somewhat of a rage at present. ULIPs differ from conventional insurance plans in one primary aspect -- they invest a major portion of their money in stocks (they also have low risk options, but the most popular ones invest predominantly in stocks); unlike traditional plans, which invest mostly in government securities (Gsecs), bonds and money market instruments. Individuals can also consider investing in pension ULIPs since from a long-term point of view, stocks have known to give better returns as compared to other investment avenues like property, gold and bonds.
However, investments in unit linked insurance plans (ULIPs) should be commensurate with the individual's risk appetite. Also, his financial portfolio should 'allow' him to take the risks associated with ULIPs -- if the individual already has a sufficient amount of investments in say, stocks or mutual funds, then a traditional pension plan might fit into his portfolio better compared to ULIPs.
As mentioned earlier, individuals need to plan for their retirement well in advance. For not only do retirement plans help in insuring the individual, they also help in the accumulation of a corpus for post-retirement needs.
And what better time to buy a retirement plan than now?
Get started with your retirement planning. Click here!
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