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Retirement Planning Through Life Insurance


Life insurance is a good financial planning instrument to ensure a comfortable retirement, as it provides various benefits to the insured. There is more than enough information on the advantage of having a life insurance policy, the wisdom of entering a life insurance plan early and the various options a life insurance policy provides.

Relevance of Starting Early

"Mr. Sharma is a 23 year old who has just gotten his first job and wants to start saving? Is it too early?"
'No it isn't, the earlier the better.' Quite simply, the earlier he will enter a life insurance policy the more will be his monetary benefit. Twenty three is a great age to start investing. He has so many years ahead of him and his savings corpus will keep on compounding. In fact, if he keeps his policy for a longer period he will earn more money. Such is the impact of power of compounding. So go ahead, start saving immediately and extract the maximum advantage from your investment.

Flexibility of Options

"What if Mr. Sharma saves in a policy and his needs change later. What will he do? He can’t see the future, you know!"
Life insurance policies offer a lot of flexibility on how he can pay his premium, how he can change the nature of his policy and the different types of policies he can opt for. This gives him the ability to choose policies to best suit his needs or the needs of his dependent children and spouse. He can also alter his policies based on his changing needs or requirements.

  • Payment Terms
    He has different options available to him to make premium payments. He can make payments on a monthly, quarterly, half yearly or yearly basis. He can also make payments online himself or better so setup an automatic debit facility from his bank account.
  • Switches and Redirection
    If he takes a ULIP life insurance policy he has two options. Firstly, he can switch units within the existing funds and also change the proportion in which the premium is allocated in these funds, known as switching. Secondly, he can re-allocate future premiums in different funds from the ones he has chosen at the commencement of the policy. This offers flexibility to change, based on his needs and wants.
  • Fund Options
    He will first have to assess his needs and wants and his risk appetite, when buying a life insurance policy. Based on this he has a number of fund options available to invest in. If he wants greater risk and greater returns he will choose to put a higher portion in equity funds. Alternatively, if he wants less risk he will invest a higher portion in debt funds. He also has policies to suit short term or long term needs. Depending on whether he wants to save for his spouse or children he has options to cater to those needs as well.

Myths About Retirement

"Mr. Varma runs his own business and he thinks he'll never have to retire. He thinks he is healthy, he's successful and he will always have more than enough financial support. He will never fall short of funds."
Sorry to burst his bubble but these are well known myths that ran through our minds before we actually start saving and spending wisely. These myths have set common traps which prevent saving now for a well earned retirement. I'm sure some of these other thoughts run through your mind as well:

  • I will never retire
    There is always a reluctance to come to terms with the fact that life will at some point of time take its toll on your mind and body. Not thinking of retirement often puts a spoke in the wheel and drives thoughts of retirement planning away. Yet everyone eventually retires because of the sheer frustration of working, medical considerations or simply passing on the torch to our children.
  • I'm too young to think about saving for my retirement
    Nobody is ever too young to start saving. In fact, the younger we are when we start saving the more we will save by the time we reach retirement. We have seen the miraculous power of compounding that multiplies money to provide substantially when we do feel the need to retire.
  • I am too old to start saving
    This is completely untrue. It is never too late to start saving. The unnecessary waste of time will only offer less to enjoy when retirement approaches. When more is saved, more multiplies.
  • I can rely on my children
    Unfortunately, our children might want to take care of us but may not be in a position, purely because they have their own family and expenses to take care of. Things will get costlier, inflation will be a consideration. These issues will create obstacles for children who may find it difficult to give their parents financial support.
  • I don't earn enough money
    It doesn't matter how much money someone earns. It takes is a little saving and wise investing and your money, however little, will multiply. This accumulated amount will definitely help provide comfort and joy at the time of retirement.
  • My company Provident Fund will be enough
    Why rely only on a provident fund. With an average 8% inflation every year a provident fund will hardly be able to keep its head above water. There is no harm in investing in life insurance to supplement a provident fund income. It will only provide more financial comfort at the time of retirement.

Well, you see, don't presume anything. You never know what will happen at the next turn. The wise thing to do is to be prepared. You will then know for sure whatever hits me at the next corner my savings will be there to assist me.

Risk of outliving your income

What if Mr. Sharma outlives his income? He never thought of that?
This is a very important point. Wise people are concerned about outliving their income when they retire because it is a possibility. Remember, if it can happen, he can prepare for it. That is why savings in life insurance is a one good way to battle the risk of outliving his savings. While he continues earning and saving now, contribute a little of that saving every month to a life insurance policy that multiplies and will serve him in the long run.

No matter what his situation is, it is always wise to live in the present and equip himself for the future.


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