Your Money: Using life insurance as a retirement plan tool

The premium amount you pay towards these plans is exempted from tax under Section 80C along with the maturity amount under Section 10(10D).

Life insurance is an ideal long-term retirement planning instrument that offers you a pool of benefits such as stability, protection and guaranteed income during your ‘second innings’ – retirement. People with a greater risk appetite can invest in market-linked insurance plans (Ulips). By investing in market-linked products, you can save in the earning phase while it grows and withdraw in the retirement phase.

Annuity plans
Then there are annuity plans available for the customers that also fall under the life insurance category and are immensely popular amongst people planning their retirement. Under any annuity plan, you invest a lump sum amount with your life insurer and in return, you receive income for life. The biggest advantage of annuity plans is that you can lock-in the rate of interest for your entire life without worrying about the falling rate of interest on bank fixed deposits. There are several types of pensions available like life annuity, joint-life annuity and an annuity with return of premium option to choose from.

For people who are looking for secured and guaranteed invest options, there are guaranteed return plans. These plans allow you to lock in the interest rate for not just five or 10 years but for as long as you live. The premium amount you pay towards these plans is exempted from tax under Section 80C along with the maturity amount under Section 10(10D).

Term plans
Term insurance plans can also help you to plan your retirement, as there are different variants available in the market. The whole life term insurance plans cover you for your entire life. Under these plans, you continue to pay premiums for your life and upon your demise; your dependents will receive the entire sum assured as a lump sum. These plans are meant for people who believe in legacy planning and wish to leave wealth for their legal heirs.

The second variant is term plans with return of premium where the entire premiums of the plan are returned to the customer at end of the policy term. If the policyholder survives the policy-term, the premiums paid are returned back and this amount can be used for taking care of the expenses during the retirement phase. In addition, the sum assured under both these variants is tax-free.

The writer is CBO, Life Insurance, Policybazaar.com