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Insurance plans after retirement

dateKnowledge Centre Team dateDecember 06, 2020 views213 Views
Insurance plans after retirement

For many, retirement implies the end of the earning period. The most discussed and planned aspect of retirement is the financial elements. This is because a person needs regular income to afford a comfortable lifestyle. The primary importance is to wisely use the retirement corpus to keep the tax liability at bay and get regular income. The challenge is people retire at the age of 58 or 60, but the life expectancy is almost 80. Besides, they need to build a retirement portfolio with a mix of fixed income and market-linked investments.

According to a PGIM India Mutual Fund Retirement Readiness survey in 2020, the incidence of retirement planning increases when income grows with 62% of those earning between the range of Rs 50,000 to Rs 70,000. However, only 44% of people earning between Rs 20,000 to Rs 50,000 have an active retirement plan.

While earning a regular income, you don't get concerned about personal finances. However, it becomes so once you retire, and the cash inflow stops. Thus, planned and structured investment is an important decision to have sufficient funds post your retirement. Let us talk about some retirement plans

National Pension Scheme:

This pension cum investment scheme allows investors to regularly in a pension account during their working life tenure. It is an ideal option for people planning for their retirement. This investment scheme provides monthly income after retirement, along with the market returns. As soon as you are retired, you can withdraw a part of the lump sum and then buy a life annuity for receiving monthly income. Besides, this scheme offers tax exemption, according to the section 80C of the Income Tax Act. The National Pension Scheme is of great importance to people who are working in the private sector.

Public Provident Fund

Public Provident Fund is a popular investment and guaranteed plan with a competitive rate of interest, and the returns are exempted from tax. This scheme mobilizes small savings as it offers an investment that has reasonable returns and provides income tax deduction according to section 80c of the Income Tax. Anyone planning a secured retirement should open a PPF account as it is a safe investment option. You get the benefit of guaranteed returns after 15 years. Moreover, PPF has low risk if we compare it to other investment plans.

Senior Citizen's Saving Scheme

It is the most preferred choice of most retirees. This scheme is applicable for senior citizens and early retirees. Anyone above the age of 60 can avail of this scheme from a bank or a post office. The early retirees can invest in this scheme if they start investing within 90 days of receiving their retirement money.

The scheme's period is five years, and you can also extend it further by three years once it matures. The minimum deposit amount is ₹1,000, and if the amount is more significant than ₹1000, then the investor has to invest in multiples of ₹1000. The maximum limit deposit is ₹15 lakh.

The current rate of interest in SCSS is 7.4% per annum, which is payable quarterly. Among all the small savings schemes in the country, SCSS has the highest rate of interest. The scheme is available through any private or public sector banks and post offices. Since it's a government savings plan, the terms and conditions remain the same, regardless of whether you invest in the post office or bank. These are the historical rate of interests for this scheme:

Time Period Rate of Interest in % annually
April to June (Quarter 1 for 202-21) 7.4
January to March(Quarter 4 for 2019-20) 8.6
October to December(Quarter 3 for 2019-20) 8.6
July to September(Quarter 2 for 2019-20) 8.6
April to June(Quarter 1 for 2019-20) 8.7
January to March(Quarter 4 for 2018-19) 8.7
October to December(Quarter3 for 2018-19) 8.7
July to September(Quarter 2 for 2018-19) 8.3
April to June(Quarter 1 for 2018-19) 8.3
January to March(Quarter 4 for 2017-18) 8.3
October to December(Quarter 3 for 2017-18) 8.3
July to September(Quarter 2 for 2017-18) 8.3
April to June(Quarter 1 for 2017-18) 8.4

Pension Plan

The Pension plan is ideal for anyone looking for a retirement investment option. This plan makes sure that a person can afford the same lifestyle even after his/her retirement. With this investment plan, you have to save a part of your income that will build over time and post-retirement, and you will get a steady income. Besides ensuring a regular flow of revenue, this plan will help you in any contingencies post-retirement.

Unit Linked Insurance Plan

To strengthen your retirement goals, the unit-linked insurance plan is a long term guaranteed savings plan which gives the investor a dual benefit of investment and insurance. This means the plan offers both guaranteed returns and protection as well. Besides, this plan's average returns are higher than other investment plans such as endowment, pension plan, etc.

If you want to customize your plan according to your goals and changing requirements, you can opt for Invest 4G. It is a Unit Linked Individual Life Insurance Savings Plan. This plan will give you full control over your savings with an unmatched blend of flexibilities and Portfolio Management Options and flexibilities. Invest 4G offers you a Life Insurance Cover to protect your family if you have an unfortunate demise.

Bank Fixed Deposits

It is another popular plan among the retirees as it provides protection and a fixed return. Also, the ease of operation makes it reliable for the retirees. The current interest rate stands at 7.25% per annum for the tenures ranging from one to ten years. The senior citizens get an additional 0.25 to 0.5% per annum, depending on the bank they choose. Unlike the SCSS, the bank deposits offer flexibility concerning the terms of the tenure.

One of the major concerns of the retiree is to run out of cash. Here are some of the essential investment options that must be taken note of. These investments will provide long term stability along with maximum return on investment. If you plan to enroll in a pension scheme, Canara HSBC Oriental Bank of Commerce Life Insurance would be the best option for you.

Post Office Monthly Income Scheme (POMIS)

The POMI Scheme is a five-year investment plan. This scheme has two variants, joint ownership, and single ownership. The maximum cap of joint ownership and single ownership is Rs 9 lakh and Rs 4.5 lakh, respectively. The interest rate offered in POMIS is 7.8% per annum, which is payable monthly. The amount invested in POMIS is exempted from all tax benefits, but the interest is entirely taxable.

The interest can also be transferred to the savings account of the same post office. Physical presence is not mandatory. The same interest can also be automatically transferred from the savings account to a recurring deposit in the same post office. The account can be single, joint, or minor and the limit varies for each.

Account Type Cap-in(in Rs)
Single 4.5 Lakh
Joint 9 Lakh
Minor 3 Lakh

Now that you know about the different investment plans post-retirement let us give you a few tips on how to plan it.

Quick tips on retirement planning:

  • If you are planning to retire right after 60 or in your early 60s, you must invest in such a manner that you would get 80% of your current monthly income.
  • Do not forget to calculate inflation while planning.
  • Invest in those instruments which would offer more than 6% returns yearly to tackle inflation.
  • Your portfolio of market-linked and instrument of fixed income should be diverse.
  • Do not forget to buy term life insurance with ample cover for your family's financial protection.

Finally, let us brief you about a few things that you should keep in the back of your mind while planning your mind post-retirement investments.

Pointers to remember while planning your retirement

Shortage of retirement corpus: One of the major problems people face is planning for retirement just before five years. On the other hand, they would have 20 more years to live. This usually happens when you fail to calculate the retirement corpus. In various cases, people miscalculate the actual size of a retirement fund. They end up either depending on their children or starting to work once again, if possible.

Negligence of inflation, life expectancy and tax: There is a shortage of funds after retirement if you don't take factors such as inflation, tax liability, and life expectancy into consideration.

Inflation:

The Indian inflation rate is 6%. If your monthly expenditure is around Rs 50,000 and you are supposed to retire after 20 years. You need approximately Rs 1.6 lakh per month to live with the same spending if the rate of inflation remains unchanged. Ignoring inflation while planning your retirement is a significant mistake.

Life expectancy:

Life is uncertain; thus, it is impossible to predict our life’s validity. Hence, we need to have life insurance to offer your family financial support, even in your absence. Your life expectancy increases as you age more. Accordingly, it would be best if you built your retirement corpus too. Let'sLet's take an example that your age is 30 years and you expect to live up to 75 years. You have planned to retire at 60. Hence, it would be best to build a retirement corpus to protect you for at least 15 years.

Tax:

People often end up giving a huge part of their retirement savings on tax. Many times tax eats away your retirement savings. Therefore, it is always advised to invest in such instruments where they offer maximum tax benefits. ULIPs are known for retirement plans because of their magnificent tax benefits.

Starting late:

Irrespective of your retirement plan, it is always recommended to start early. Starting is one of the keys to offer a lump-sum during maturity. The power of compounding is best utilized when started early, and this leads to healthy retirement funds. The premium keeps on increasing with age in both term insurance plans and ULIP retirement plans. If you start early, you would acquire more funds and get them at a low premium. This soft premium would lead to a maximum return. If you are planning to invest for your retirement, do not delay it.

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Frequently Asked Questions (FAQs) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
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