What Kind Of Insurance Should I Consider For Retirement?

 

Financial planning for retirement is an important step for your well-being during the sunset years of your life. Old age brings a set of unique problems such as health issues and the inability to work. You need a regular income to support yourself. On top of this, you may have a mortgage to pay off or meet your children's education expenses.

How can you manage so many expenses when you are not able to earn a living? The answer lies in having proper retirement plans. You should work out and follow a retirement plan that foresees all these scenarios.

Plan in Advance

For a financially comfortable retirement, you need to plan for it at least 15 years in advance. It takes many years of small savings to accumulate a reasonable sum of money. Also, you need to pay an insurance premium every month for ten or more years to see it mature. You can receive this money either as a lump sum or as a pension plan.

Assess Your Retirement Needs

Every person has their unique set of retirement requirements. For example, one may have to pay off the mortgage while someone else may have to pay for children’s education or own medical expenses. Having a car can mean many conveniences, but you need to pay for its maintenance and insurance. Given this, you need to evaluate your retirement needs and make appropriate financial plans to address them.

However, everyone needs a set of insurance plans and at least one pension plan for their retirement. Here are common insurance and pension plans that should make your retirement planning comprehensive and effective. 

Insurance Plans:

1. Life insurance

A pure life insurance policy is one of the most basic retirement plans. Under this, you pay a fixed amount every month towards your life insurance. In the event of your death during the policy period, your chosen beneficiaries will receive the assured amount. You don’t get any money at the end of maturity.  

2. Whole life insurance

A whole life insurance plan covers the entire life, and the benefits are paid to the chosen beneficiaries after the death of the insured. However, this plan has a savings component where the funds build up and can be accessed by the policyholder during his lifetime.

3. Health insurance

Hospital and medicine bills can add up to a big sum, particularly in old age when you consistently have one health issue after the other. Health insurance can absorb much of the financial shock you receive on this count. A health insurance policy after the age of 50 can cost a little more than usual. However, having a health insurance plan can give you a lot of financial protection and peace of mind.

4. Disability coverage

Workplace hazards are something most of us don’t take seriously. But they are real and rampant. An injury can often leave you out of work for weeks and months and, in some cases, forever. You should subscribe to a long-term disability insurance cover as part of your retirement plan. It will ensure you receive a regular income during the period you are out of the job due to an injury.

5. Auto insurance

Your car is big support during your old age as it keeps you mobile and lets you finish outside work with convenience. But the car needs a proper insurance cover to meet financial liabilities in the event of an accident or write-off. If you have a car, you should also have auto insurance.

Pension Plans 

Your retirement plans are not complete until you have subscribed to a pension scheme. It will ensure you have a regular income to meet your day-to-day expenses. There are many pension plans, and you can choose one or several of them as per your need and resources. Here are a few of them:

1. Term insurance

You can invest an amount in term insurance and start receiving a regular monthly income. It’s an investment plan that pays like a pension scheme. Under this, you invest a sum of money for a fixed term. Depending on the amount, you receive a monthly, quarterly, or annual payout while the principal amount stays intact and is paid back to you at the end of the term. There can be different types of term insurance plans depending on how the insurance company further invests your money.

2. National Pension Plans

To give every citizen an option to have a regular pension, the Indian government launched the National Pension System (NPS) in 2004. Any Indian between 18 to 65 years can subscribe to a pension fund and make regular contributions to this fund. When leaving the NPS, the subscriber can choose the accumulated fund to be partly paid as a lump sum amount and part of it purchase annuity/pension plan from empanelled life insurance companies. It’s simple, low-cost, flexible, and portable.

3. Endowment plan

One of the most popular retirement schemes, endowment plans, offers life insurance coverage and pays a lump sum at the plan's maturity. Like term insurance, an endowment plan can be of different types depending on where the money is invested.

4.   Money-back plans

In this type of investment, policyholders receive regular payouts while a lump sum amount with applicable bonuses is paid at the maturity of the policy. The investment can be one-time or through monthly premiums.    

Summing Up

A pension scheme should be one of the most important items on the list of your retirement plans. You can choose from a number of term plans for retirement that offer both annuity and lump-sum amounts.

Planning your retirement requirements and buying appropriate investment and pension schemes well in time is crucial for a financially comfortable retirement life. Given the importance of a sound retirement plan, you should not shy away from taking the help of an independent financial advisor to prepare a sound retirement plan for you. You can also visit Edelweiss Tokio to have a look at their retirement plans that will leave you stress-free about the future. 

 

Myths and Facts About Tax Saving Mutual Funds

 

The term tax-saving mutual funds may at first seem like an irony to you. This is because mutual funds typically tend to be investment and growth-focused whereas traditional tax-saving instruments are focused on well, savings.

However, this is no longer true.

Owing to the growing preference among salaried professionals and business persons for mutual funds, as well as tax-saving products that offer better returns and lesser lock-in, tax-saving mutual funds are now a reality. Commonly known as equity-linked saving scheme or ELSS, such tax-saving mutual funds help you deliver on your tax-saving goals without requiring you to make long-term commitments.

However, before you can go ahead and invest in such a tax-saving mutual fund, you need to be clear about the various myths and facts associated with tax-saving mutual funds.

Myths	Facts
Tax-saving mutual funds require you to invest a specific amount	You can start with as little as Rs.500 a month if you wish to invest in any good ELSS or any top tax saving mutual fund
You can save very little tax when you invest in an ELSS	Assuming your income falls under the 30% tax slab, and if opt for the maximum investment allowed under Section 80C, which is Rs.1.5 lakh, you can save as much as Rs.46,800 in just one financial year
It is very complicated to identify a well-performing tax-saving mutual fund	It is fairly easy; there are a host of online resources where you can compare yearly and longer tenure trends

 

Watch: #SavingsKaDoubleRole - Save Tax and Build Wealth with Mutual Funds Tax Saving Schemes

Now that you have a fair understanding of the various facts that make tax-saving mutual funds or ELSS mutual funds a viable instrument, there are some more things you need to keep in mind to get best value for your investment efforts.

Common Mistakes	Expert Approach
Investing all your tax saving amount in a single top tax-saving mutual fund	Diversifying your investment amount into multiple top tax-saving mutual funds
Withdrawing your investment after the mandatory three-year lock-in	Staying invested in the tax-saving mutual fund or ELSS even after the mandatory lock-in is over for continued taxation benefits on returns
Investing a lumpsum amount at the end of the year when tax-related investment becomes crucial	Investing through the year to benefit from the law of averages while gaining tax saving benefits

 

You are almost ready to invest in top performing tax saver mutual funds for tax planning. However, before you can get started, here are some final things to keep in mind.

Frequently overlooked things	Best practices
Having a tax-saving strategy, just as you have an investment strategy	Basis your taxable income or your tax slab, and the various tax benefits available under different sections, consider how much income should you keep aside every month for gaining adequate tax benefits
Considering all tax-saver mutual funds or ELSS funds to deliver similar benefits or returns	Compare top tax saving mutual funds in terms of historic returns and look out for add-on benefits, if any
Assuming all tax-saving mutual funds expose your investments to 100% equity	Understanding that tax-saving mutual funds or ELSS funds vary in their equity exposure, ranging from 80% to 100%

Basis all the above factors, you should invest your hard-earned money to gain tax-benefits not just for the current financial year, but for years to come.

 

Also Read: Tax planning with mutual funds