You work hard and earn a living so that you can take care of the needs and goals of you and your family members. One such goal you work for is Retirement. You hustle during your work life so that you live happily and stress-free post your retirement.
After retirement, you can spend more time with your family, travel to some beautiful destinations and try new hobbies, etc. But with the enjoyable part of retirement, there come financial challenges too.
You no longer receive any external source of income when you retire. You have your savings and other investments (if made) to rely upon. Thus, you have to make sure you have saved enough and have a big corpus at your disposal.
Other challenges that arise with retirement are:
Inflation: Inflation causes a rise in the general price level. This means that you will now have to pay more for a thing than you used to. This causes your funds to deplete faster.
Low-interest rates: When the interest rates are low, your retirement fund grows slower, this can cause you to struggle in meeting your expenses.
So, with these challenges of retirement, you must buy yourself a plan that keeps you protected against these challenges and that too for a longer period.
Whole life insurance can be a good alternative.
What is a Whole Life Insurance?
As the term itself suggests, whole life insurance is a type of life insurance plan which covers you for as long as you live. These plans require you to pay premiums for a limited period and in turn provide you with death benefits as well as maturity/survival benefits. This is based on the fact that you pay regular premiums.
For example, at the age of 30, you decide to buy a whole life insurance policy for yourself. Your premium payment term is of 30 years. So, under this, you will have to pay premiums only till you turn 60 and you will be covered for as long as you live.
How does a Whole Life Insurance Work?
After you buy a whole life insurance policy, you must be interested in knowing the working of it. Here’s how it works:
1. You will pay the premiums for as long as your decided premium payment term is.
2. Whatever term you have chosen, the maximum time till you have to pay your premium is generally 60 years (pay till 60 is the best option)
3. If you die before the maturity period of the policy, your family will receive the sum assured.
4. If you survive till the time you have paid all your premiums, you will be given back all the premiums that you have paid. Your policy still continues.
5. Now if you die before the age of 99, your family is entitled to receive the sum assured
6. If you survive the age of 99, you will get the sum assured and then the policy will be terminated.
7. These benefits are payable to you or your family in a lump sum only.
Whole Life Insurance for Retirement
Whole life insurance plans which can build cash value and has chances to increase your investment’s value can be seriously considered if you are planning for your retirement.
In India, Whole life insurance plans are essentially term plans that provide you with extended life coverage. Some ULIPs also provide you with the option to extend your cover. Here is how these can help.
1. Return of Premium
Term life insurance policies require you to pay a premium to the insurance companies to keep your policy running.
Various term plans like Canara HSBC Oriental Bank of Commerce Life Insurance iSelect Star Term Plan have a feature of return of premiums. The amount that you have paid towards the premium over the years will be added to your fund at maturity. This gives an extra boost to your corpus when you retire.
2. Partial Withdrawal Facilities
Whole life ULIPs also offer you a partial withdrawals facility. You can withdraw the amount from the fund’s value. In retirement, these features come in handy when you face an emergency and need urgent money.
Partial withdrawals made after the lock-in period (5 years in most ULIPs) are completely tax-free. In policies like Invest 4G, there is no limit on the number of partial withdrawals you can make.
3. Build yourself a Valuable & Long-Lasting Asset
Buying term insurance with an extended life cover helps you build an asset that will come in handy in your retirement. The sum assured to be received is certain. This can be used to achieve your family’s needs and goals. Here is how it can help
a) Helps you in Getting a Loan
Since the sum assured and the maturity benefit both are guaranteed, it can act as a strong asset. This stableness of the policy will also help you to take a loan against it.
b) Surrender Value
If you do not want to continue further with the policy. A whole life insurance policy also gives you an option to surrender it.
Policies like iSelect Star Term Plan provide you with a guaranteed surrender value or a special surrender value if you decide to quit it before maturity.
4. Tax Benefits
You are eligible to avail of tax deductions up to Rs 1.5 lakh for the premiums paid towards your term life insurance as per Section 80C of the Income Tax Act 1961. Thus, your tax liability is decreased. Also, the maturity benefit that you will receive is exempt from tax under section 10(10)D.
Apart from these, the loans you take against the policy are also tax-free.
When Should you Buy a Whole Life Insurance?
Now that you know how a whole life insurance plan can prove to be a good asset considering your retirement, the next question that would arise will be regarding the right time of buying life insurance.
Well, the earlier you decide to buy the better it will be for you. This is because of the following reasons:
1. The younger you are when buying life insurance, the lesser the premiums will be. This is because at a young age you are less likely to die and hence pose a low risk for the company.
2. The more time you give to your investments, the more they will grow. Allow your funds to use the power of compounding returns
Thus, depending on the type of whole life insurance you buy, you have access to multiple benefits. Some of these, like the return of premium and partial withdrawals, can be greatly supportive during retirement.