help plan for retirement and offer the security of insurance.
Retirement plans play an important role in an individual's financial preparation as he or she steps towards retirement age. There are decisions involved in retirement planning, and so are questions about those decisions. After all, decisions in retirement planning have a direct impact on claims, and it is only natural that you would want to set things right at the outset.
One of the common questions is with regard to the choice between retirement plans and endowment plans. You must have heard of endowment plans and their usefulness as tools towards retirement age. However, you must have also heard of retirement plans. What are those and how useful would they be? If you are getting ready with retirement planning, should you go with retirement plans, or should you choose endowment plans? You would have clarity about the question and the impact of your choice on your claims, as you read through.
There are many options available for retirement planning. As people get ready for their retirement age, the prominent idea is to make claims that would satisfy their need for financial security as and when they needed them. Retirement planning involves many tools, such as investment in Public Provident Funds (PPF), National Savings Certificate (NSC), National Pension Scheme (NPS), investing in Post Office Monthly Income Scheme (POMIS), creating Fixed Deposits (FD), and of course, investing in insurance.
Endowment plans combine life insurance with an investment part. They are designed to provide you with an insurance cover for a specified period of time. This is considered as an attractive action for those inching towards their retirement age for two reasons – one, endowment plans provide with the insurance cover needed for the period of insurance; and two, even if claims are not raised for insurance within the period, there would be a sum Assured that would be repaid at the end of the insurance period. In effect, with endowment plans, you would be able to get your Sum Assured back at the end of the insurance Term when you survive the term of the insurance Policy without staking claims.
Unit-linked plans have been among the popular options for many looking for the benefits of higher returns associated with changes in the market. Retirement plans that are unit-linked and geared towards retirement age are legally bound to provide insurance as part of the package. You could use unit-linked pension plans for retirement planning, where one part of the corpus is paid back to the policyholder, and the other part is continually invested to provide for a steady flow of funds in retirement.
Endowment plans, as have been discussed, are time-bound – they provide insurance cover for the entire duration of the policy, giving you the freedom to stake claims while being equipped with an investment option and annual bonuses. The returns from endowment plans could be expected to be lower than those from retirement plans that are unit-linked, since unit-linked plans are market-oriented, while investments are done in more stable instruments such as government bonds in the case of endowment plans. Further, there would also be no assured annual bonuses associated with endowment plans. You could also expect higher premiums to be paid, given that you have survival benefits on your side
The decision to choose between endowment plans and retirement plans that are unit-linked, hence, depends very much on the kind of safety that you would want on your invested funds, the cost that you would want to pay in the form of increased premiums, and the balance that you would want to strike among risk, returns, and insurance in your retirement planning. Investment decisions as you approach retirement age have to be suited to your individual circumstances for you to make the best of them.