IN UNIT LINKED PRODUCTS, THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER.
Sanjay was running through the list of investment products his financial adviser had recommended to help him plan his retirement.
He considered life insurance as the retirement product that he was looking for.
Assuming it was a mistake, Sanjay went through the rest of the contents of the retirement planning document Ravi (his financial planner) had sent.
Sanjay wasn’t convinced. Who could blame him? He observed his father and uncles buying insurance as a safety net for the family upon their untimely death. Similarly, when he started working a decade ago, he bought an insurance plan for its safety net and tax benefits as per prevailing tax laws. Because that was the conventional wisdom, “life safeguards your family against financial struggle upon your death”.
When they met later that evening, Sanjay pointed out the recommendation of life insurance in his retirement portfolio. Ravi clarified, “LIFE INSURANCE IS ONE OF THE MOST UNDERRATED AVENUES IN RETIREMENT PLANNING.” Being open-minded and always willing to try new products that could bolster his retirement corpus, Sanjay was all ears.
Ravi continued, “Insurance can be a retirement planning product, provided you stay invested, even if you have no outstanding loans and obligations to provide for your children. When you cancel your life insurance cover, you will never get the same premium payment plans and other benefits upon re-investment in a new plan at a later date. This is because the premium for an older and retired investor tends to be higher than the premium applicable to a younger working investor, on account of higher risk. Premiums rates are higher for older individuals as the insurance company perceives a higher risk on account of age-related susceptibility.” So, LOWER AGE MEANS LOWER PREMIUMS.
Life insurance policy is relevant in retirement planning for the following to 3 reasons:
1. Life insurance policy guarantees regular income stream during retirement
A life insurance plan can guarantee a steady stream of income during your retirement years. When an insurance plan matures, you could invest in an annuity and enjoy a steady income every month after your retirement.
An annuity is an instrument that collects a fixed sum regularly during its term and upon maturity pays a steady stream of payments to the investor from the amassed pool.
Insurance regulator requires capital protection as a fundamental part of any post-retirement solution. Insurance companies offer long-term solutions and guaranteed income plans that allow you to save systematically in a variety of equity and debt instruments.
2. Life insurance will look out for your spouse in your absence
Sanjay had told Ravi that one of his objectives for retirement planning was providing a comfortable life for his wife even if he was not around. Sanjay was aware that the death of an earning member could mean financial struggle for the surviving spouse and dependents, and he wanted to protect his wife from it.
Ravi explained “If you, god forbid, were to pass away during your retirement years, the payout from an insurance policy will benefit your surviving wife and dependents. So, you can rest in peace knowing that your wife isn’t left to fend for her survival or struggle to make ends meet.”
When you turn 50 and wish to boost your retirement plan a life insurance policy could be a prudent measure. Since you already have a term life policy, you can also pick a top-up plan, with a lower premium instead of a fresh cover. That way you won’t feel the pinch.
3. Life insurance plays a double role in the scheme of your retirement planning
Depending on the type of life insurance, it can also serve as a safe asset lending to diversification in a portfolio.
Ravi elaborated on the role of life insurance in portfolio diversification, “The performance, in terms of price movement, of various products in a portfolio is either in the same direction or opposite. A well-diversified portfolio leverages this correlation dynamics to reduce risk and increases the overall return of the portfolio. In case of assets that perform differently, the gain of one absorbs or offsets the losses on another. Investing in a balanced fund such as life insurance can assure a secured growth of your retirement corpus.”
Sanjay was convinced that a life insurance plan could boost a retirement plan. He asked Ravi to recommend life insurance products, not in his portfolio but being offered in the marketplace. Sanjay wanted to leave no stone unturned when creating a well-diversified portfolio of investment instruments. He was confident that Ravi would look out for him and adjust his portfolio mix to a more conservative type as he got closer to retirement age.
Ravi’s closing remark was quite astute, “Whether you start saving early or late, there are retirement and pension plans to help you make the most of the time you have before retiring. At the end of the day, awareness while choosing your insurance plan will go a long way in reaping considerable benefits in the years to come.”
THE LINKED INSURANCE PRODUCTS DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICYHOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF FIFTH YEAR.
Unit Linked Insurance Products (ULIPs) are different from the traditional insurance products and are subject to the risk factors. The premium paid in the Unit Linked Life Insurance Policies is subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Max Life Insurance is only the name of the insurance company and Forever Young Pension Plan(UIN: 104L075V02)is only the name of the unit linked life insurance contract and does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these funds, their future prospects or returns.For more details on risk factors, terms and conditions please read prospectus carefully before concluding a sale. Past performance of the funds does not indicate the future performance of the funds. You may be entitled to certain applicable tax benefits on your premiums and policy benefits. Please note all the tax benefits are subject to tax laws prevailing at the time of payment of premium or receipt of benefits by you. Tax benefits are subject to changes in tax laws.