Term Insurance for Retirees: Managing Financial Security in Retirement

Term insurance is a form of pure protection life insurance designed to provide coverage to the policyholder in the event of an untoward occurrence within the policy period. In the case of the policyholder’s absence, the plan’s beneficiaries are given a pre-fixed death benefit to help them address their financial needs.

Term life insurance can help retirees fortify their retirement plans and provide them with peace of mind. Retirement does not exempt anyone from life’s uncertainties. Therefore, considering a term plan as part of your retirement financial strategy is both wise and crucial.

A term insurance plan allows retirees to leave behind a tax-free legacy for their loved ones, ensuring they are well looked after. Discover more about term insurance for retirees and how it provides financial security in retirement.

Why should term insurance be a part of your retirement plan?

Below are some reasons why term insurance makes for an excellent retirement planning tool:

1.     Protection against debt

With a limited source of income, covering your financial needs in retirement can be challenging. Unexpected expenses or emergencies may increase reliance on debt, such as loans and credit cards. While loans and credit cards offer convenience, repaying debt requires time and effort. As you age, the concern of leaving behind financial burdens can become daunting.

Purchasing term insurance at this juncture can provide you with assurance that your outstanding loans will not burden your loved ones in your absence and ensure their financial security.

2.     Coverage for essential expenses

Term life insurance provides a substantial sum assured to surviving family members, which can be disbursed as a lump sum or regular income. In the case of a lump sum, it offers immediate financial relief to cover essential payments such as debt, a down payment for a house, or significant life events like a child’s or grandchild’s marriage expenses. Alternatively, when received as regular income, it serves as a pension substitute, ensuring long-term financial security for the beneficiaries, regardless of life’s uncertainties.

3.     Lifelong financial security

Typically, the maximum age for obtaining a term insurance plan is set at 65 years, and the term duration can extend up to 30 years. If you purchase the plan at the age of 65 and opt for a 30-year term, you can potentially secure financial protection for your entire life. In such a scenario, your loved ones are never without financial coverage as long as you are around. This assurance can be comforting and ensure your loved ones’ financial interests are protected in your absence.

4.     Tax-advantaged savings

A term insurance plan is a multi-faceted plan when it comes to tax. Term insurance can help retirees lower their taxable income with a tax deduction of up to Rs 1.5 lakh per annum under Section 80C of The Income Tax Act, 1961. Additionally, the death benefit paid to the beneficiary is exempt from tax under Section 10(10D) of the same act.

It is prudent to acknowledge the possibility of an inheritance tax being imposed on estates in the future. Although this is still speculation, it can help to be prepared for such an eventuality. Term insurance can be bought under the Married Women’s Property Act (MWPA), which allows the insurance payout to be passed down to the spouse or children tax-free.

5.     Enhanced healthcare planning 

One lesser-known aspect of a term life insurance plan is its option to include a health rider. Term insurance offers various riders, including critical illness and terminal illness riders.

The critical illness rider provides financial protection through a lump sum payout upon diagnosis of major or minor illnesses as listed in the plan. Covered illnesses typically include stroke, cancer, kidney and liver ailments, brain tumours, and organ transplants, among others. The payout can be used for pre- and post-hospitalisation expenses as well as other costs. Conversely, the terminal illness rider offers the entire sum assured upon diagnosis of a terminal illness to ensure peace of mind at a difficult time.

In both riders, term insurance ensures that adequate funds are available to cover healthcare expenses and enhance the quality of life during challenging times.

6.     Affordable solution

Retirees often face financial constraints, as they mainly rely on pension income without the buffer of a regular salary. Hence, it is crucial to seek affordable options to maintain financial security. Term life insurance presents an attractive solution with its affordability. It offers relatively low premiums for a high sum assured, sometimes up to Rs  1 crore or more. This accessibility makes term insurance a viable choice for most retirees, regardless of their financial standing.

7.     Long-term savings

Term insurance can be used as a low-risk savings tool. For instance, the return of premium term insurance plan offers a lump sum refund of all premiums paid if the policyholder outlives the term. Should the plan mature without any claims, you have the option to receive a refund of the premiums paid. This refund can bolster your retirement savings or be passed down to your near and dear ones according to your wishes.

To sum it up

Although term insurance is commonly marketed towards young, earning individuals, its significance for retirees cannot be overstated. Retirees often bear equal or even greater financial responsibilities, making term insurance invaluable for planning for financial contingencies, attaining peace of mind, saving on taxes, and ensuring affordability in retirement.

With numerous benefits, term insurance becomes a crucial component of your retirement portfolio. Use a term insurance calculator to assess your needs and secure a plan today!

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