Life Insurance

What is Retirement Life Insurance Plan in India?

What is Retirement Plan? Retirement planning means accumulating a corpus for your retirement. When you retire and your source of income stops, you have considerable funds at your disposal to meet…

What is Retirement Plan?

Retirement planning means accumulating a corpus for your retirement. When you retire and your source of income stops, you have considerable funds at your disposal to meet your lifestyle expenses. Retirement planning is an important activity you should do to comfortably live out your retired life without depending on anyone financially. There are various investment tools for retirement planning, and life insurance is one such tool that can help you create a retirement corpus. Life insurance can not only help you create a retirement corpus; it can also ensure regular incomes for your entire life. Do you know how you can use life insurance for retirement planning?


Let’s explore!

Life Insurance Retirement Plans-

Pension plans are designated life insurance retirement plans which help you plan for your golden years. There are two types of pension plans, and you can choose any plan for your retirement planning needs. Let’s understand these life insurance plans for retirement and how they help create a designated retirement corpus –

Deferred Annuity Plans:

Deferred annuity plans are pension plans with a specific policy term. If you want to create a retirement corpus over your active working life when you need the corpus after some years, you can choose to invest in a deferred annuity plan. Over the term of the policy, you pay premiums that accumulate into a corpus. After that, when the plan matures, you can use the accumulated corpus to get lifelong annuities. Here are the salient features of retirement life insurance plan –

  • The plan comes both as an endowment plan as well as a unit-linked plan. You can choose a plan based on your risk appetite. Endowment-oriented plans would give guaranteed returns, while under ULIPs, you can get market-linked returns to build up an inflation-adjusted corpus for retirement.
  • In case of death before maturity, a death benefit is paid under the policy.
  • On maturity, the plan is said to vest. Once the plan vests, you have three options. Firstly, you can choose to withdrawn 1/3rd of the accumulated corpus in cash. This would be a tax-free benefit in your hands and would be called commutation of pension. The remaining corpus would then be used to pay your annuities. Secondly, you can use the entire corpus to avail of annuities. Thirdly, you can postpone the annuity payments and choose to receive annuities after some years.
  • The premium paid towards the policy is allowed as a deduction from your taxable income under Section 80CCC of the Income Tax Act, 1961. The maximum limit is Rs 1.5 lakhs which includes Section 80C deductions. The commuted corpus that you withdraw is also tax-free under Section 10 (10A). However, annuities received from the corpus would be taxable in your hands at your income tax slab rates.

Immediate Annuity Plans:

While deferred annuity plans have a specific tenure after which the annuities are paid, immediate annuity plans are the opposite. Under these plans, you must pay a lump-sum premium to buy the policy and annuity payments immediately. Thus, immediate annuity plans are suitable for retirees who can use their accumulated retirement corpus to purchase annuities that serve as regular incomes to meet their financial needs. The salient features of this plan of life insurance for retirement are as follows –

  • You can choose to receive the annuity monthly, half-yearly, quarterly, or annually.
  • There are different types of annuities which you can choose from. There are single-life annuity plans and joint-life annuity plans. While single-life annuity plans give you annuities throughout your life, joint life annuity plans pay annuities on the life of your spouse, too, in case of your premature demise.
  • Annuities are paid at a guaranteed rate throughout your life.
  • Some annuity options refund the lump sum premium that you had paid to buy the policy in case of death.
  • The premium paid to buy the policy is allowed as an Income Tax deduction U/S 80CCC up to a maximum of Rs 1.5 lakhs. Annuity incomes received, however, would be taxed at your income tax slab rates.

So, these two plans serve as plans of life insurance for retirement planning. You can choose one or both policies and create a retirement corpus or use an already accumulated corpus to receive lifelong incomes. You can also choose unit-linked insurance plans to invest in and earn market-linked returns. The corpus that you create through a unit-linked policy can be used as a retirement fund. You can then use the accumulated fund value of your unit-linked plan to buy an immediate annuity policy to give you lifelong annuities


Life insurance plans are multi-faceted. Besides allowing your financial security in premature death, they can double up to fulfill your financial goal. Pension plans are life insurance retirement plans which you can avail to create a retirement corpus and fund your retired life with regular incomes. So, create a retirement plan at the earliest and invest in life insurance plans for retirement.

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