The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am a 42-year-old man working with a multinational company. I want to start planning financially for retirement. I want to know how retirement plans work and if they are beneficial.
India lacks a well-defined social security system and the traditional support system is weakening. So, a vast majority of us are left to fend for ourselves postretirement. Life insurance and retirement plans help you plan your finances and provide a strong social security net for people in case they outlive their savings. In essence, most people buy life insurance to achieve peace of mind so that they are not dependent on anyone in their golden years.
A retirement plan has two phases: accumulation phase and payout phase. During the accumulation phase, you get a way of creating an appropriate retirement fund by saving regularly, and also get a tax benefit.
The main benefit of retirement plans is that they force you to save regularly. In the payout phase, you get a periodic payout which is called an annuity.
This mechanism ensures that you have periodic cash flows during your retirement, akin to a salary during your working days. It thus obviates the possibility of a lump sum being consumed immediately. Hence, retirement plans help you weave your own social security net for your golden years.
I am a 33-year-old man. I had purchased a unit-linked insurance plan (Ulip) from a private life insurer two years back. How can I invest my surplus funds to get better returns?
Top-ups are a feature provided in most Ulips to help you invest additional sums of money. Top-ups allow you to supplement the regular savings plan as and when you have a surplus—like when you get a bonus, an inheritance or proceeds from an asset sale. You need not buy a new policy, which might involve additional processing time and costs. All you have to do is fill up a simple form and invest the surplus. Some products might require additional underwriting, though. Please check with your financial adviser or your insurance company’s customer service unit to check how you can avail of this facility.
Readers are welcome to write in with their queries to firstname.lastname@example.org. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Rajesh Relan, managing director, MetLife.