How To Enhance Your Existing Pension Plan With Life Insurance
Vishal saw his friend Rohan searching for the best retirement plans on the internet. Vishal got curious and asked Rohan that why is he suddenly planning to buy a retirement coverage. To which Vishal replied that it will help me live a stress-free life post-retirement. Vishal tried hard to be cautious with his words and, in the politest way, questioned him that what if he unanticipatedly passes away before retirement. Will the pension be enough for his family?
I know Vishal’s very realistic and practical question got all of us thinking that how can we enhance our pension plans? One can do it by choosing a life insurance retirement plan.
Why life insurance for your retirement plan?
People often do not see life insurance as an important part of their retirement plan. It is a way through which you can ensure your family’s financial security in case you die unanticipatedly. Getting life insurance in your retirement plan is a must, as it is advised by many financial advisors. Life insurance has a lot of potentials to be more than what it is if it is utilized properly in an all-inclusive retirement plan.
A retirement plan is designed to meet your retirement needs. The retirement plan allows you to develop a retirement plan in a cost-effective and secure manner.
It is essential to include life insurance in your pension plans as it makes sure that in the event of your unforeseen demise, your direct dependants like your spouse, children, elderly parents, etc., will be taken care of financially. To secure your and your family’s future, it is advised to make life insurance a part of your pension plan.
Defined Benefit v/s Defined Contribution.
The pension plans are generally categorized into either defined benefit or defined contribution.
A defined benefit pension plan is a retirement plan in which the pension amount of the retirement benefit is fixed beforehand. To calculate this, certain factors are taken into consideration as the number of service years and salary are the main ones. Irrespective of the returns generated by your funds, you will be given the assured pension amount.
Now contrary to the defined benefit plan, a defined contribution plan is a retirement plan in which the pension amount is not known beforehand. In this plan, your pension will be dependent on the contributions you made and the returns which your investments fetched. A fixed amount of contribution is made by you and your employer, which is then invested. Any sort of risk will be borne by both.
The main difference between a defined benefit plan and a defined contribution is that the former has a fixed pension no matter how your investments perform, whereas the latter doesn’t have a fixed pension promised beforehand and rather is dependent on the contributions made by you and your employer and how your investments perform.
Tips to use life insurance in your pension plans
It is important to choose a pension plan wisely as it will directly affect you ans your family. Here are some tips on how to use life insurance for your retirement plans:
Life insurance as part of your financial plan
Life insurance is the perfect retirement savings method. Make sure to consider how long will it take you to save up enough money for your dependents when you are gone as well as your age, while deciding term duration for pension plans. Select the insurance amount after evaluating debts taken, duties, and financial liabilities.
Invest in long-term disability insurance
While making pension plans invest in disability insurance as it replaces a portion of your income when you can’t work. Disability insurance can help you to pay off your essential spendings like food, major utilities, bills, school fees, mortgage, and car payments when you are unable to work due to injury or illness.
Use term life insurance for retirement.
At the brokerage firm, you can establish a tax-advantaged retirement fund through term life insurance. Also, term life insurance is suitable for pension plans as it assures a high sum at an affordable premium. It has multiple death benefit payout options. It also covers critical illness and accidental death.
Including life insurance in your pension plans is a must. Adding life insurance to your existing pension scheme will enhance it. It will be beneficial for you after your retirement, and in case of unforeseen death, it will help your family keep on with their regular payments. It will also make sure that all kinds of financial debts and liabilities are being paid, odd in case you die or even if you don’t. Take help from a financial broker to get the best pension plan in india.
What happens to my pension if I die before retiring?
If you die before reaching retirement age, the money in your pension is not lost. It will be passed on to your heirs or beneficiaries. Though there are several pension plans which also provide a spouse pension.
How does a pension plan work?
A pension plan which is also known as retirement pension plans, comes in two phases that are accumulation phase and the annuity phase. As the name suggests, in the accumulation phase, you accumulate the money for post-retirement in the accumulation phase by paying premiums for the plan’s tenure. Whereas in the annuity phase, your accumulated money is invested, which fetches returns, and it is the main source of your pension.