While retirement brings with it the opportunity to finally enjoy the fruits of your labour, it can also make you more vulnerable to financial blunders. Let’s see how.
Retirement is a bittersweet experience for many. While you might look forward to spending your days without worrying about work deadlines, appraisal blues and daily commute woes, some others are at sea about what to do with so much time at their disposal.
Then there are those who start planning for this period as soon as they join the workforce by making investments in Mutual Funds, Health Insurance and Fixed Deposits. And then there are those who don’t prep for it until they’re a few years away from it. Retirement also brings with it the opportunity to finally enjoy the fruits of the hard work and the crazy number of work hours you’ve pulled off for almost three decades.
However, it can also leave you equally vulnerable and exposed to ploys by several financial institutions and insurance companies. If you’re wondering why that’s the case, it’s because the retired often have a sizeable corpus at their disposal. Cases of retired or senior citizens becoming an easy target of mis-selling are not uncommon.
We’re going to share a few pointers here that will help you keep incidences like these at bay:
Never fall for ‘guaranteed return’ policies
When you retire, the last thing you should consider buying is Life Insurance. Ideally, you should buy a Life Insurance policy at the start of your career so that it can act as a substitute for your income in your absence if your family is financially dependent on you. Insurance companies and banks nowadays have also got into the habit of selling ‘guaranteed return’ plans or traditional plans that are a mix of insurance and investment.
These plans promise a maturity corpus at the end of the term but don’t make sense for senior citizens at all. Most of these plans come with a long maturity period, say over 10 years, and the returns are paltry; hovering around 5%. The premium one has to shell out for these plans is also pretty high, which makes investing in these plans an absolutely ridiculous idea.
Additional Reading: 5 Ways To Make The Most Of Your Retirement Corpus
Buying insurance products at the bank is a strict no-no
As a result of bancassurance tie-ups with insurance companies, banks also sell insurance products at their premises. In fact, a majority of mis-selling takes place here and the retired are often an easy target of this practice. This is again because senior citizens are flush with post-retirement funds. They are looking to make investments but are not aware of the right investing avenues.
Most senior citizens also tend to trust banks that they have been long-standing customers of. So when their relationship branches suggest an insurance product, they assume they are being advised with their best interests in mind. However, what happens, in reality, is quite the opposite. The bank officials might sell insurance products to their retired customers with false promises of higher returns and get their signatures on the policy documents without providing anything in writing.
This means that even if the customer realises that he has been a victim of mis-selling, he can do little about it as his signatures are on the documents and there is little or no evidence of mis-selling.
Additional Reading: Football Stars And The Secrets Of Successful Retirement Planning
Single premium plans are not your saviour
ULIPs and traditional insurance plans come with three options of premium payment – regular, limited period and single. A single premium plan means paying only once for the entire term and invariably involves a big sum. Senior citizens are the easiest targets of these kinds of plans.They’re sold under the pretension of offering higher returns than Fixed Deposits along with more tax advantages.
Nothing could be further from the truth. For these plans, insurers keep the sum assured at 1.25 times the single premium for those below 45 years. They reduce it to 1.1 times for those above 45 years. For the maturity proceeds to be tax-free, the premium needs to be 10% of the sum assured and senior citizens lose out on this benefit. This is why they should avoid these plans like the plague.
ULIPs should not be your pick
ULIPs are market-linked insurance plans. Instead of investing in safe debt instruments, they put their money in Mutual Funds so that returns are higher. However, they come with a lock-in period of five years and prohibitive costs that even eat into the investment. Most senior citizens are looking for a regular flow of income post retirement and ULIPs don’t fulfil this requirement.
Moreover, in order to be eligible for tax benefits under Section 80C, the premium needs to be 10% of the sum assured. If they get locked into a plan that involves a premium higher than 10% of the sum assured, the maturity proceeds will be added to their income and taxed at applicable rates.
What to do if you’ve been a victim of mis-selling?
Thank your stars if you realise you’ve been a victim of mis-selling during the free-look period as you can easily return it to the relevant insurance company with a simple application. However, if the period is over, you can either make it a paid-up policy or surrender it.
For a paid-up policy, you should have paid the premium for at least three years for policies with a term of more than 10 years. However, for a lower term, the premium should have been paid for two years. This will reduce the cover in line with the premium paid. You will receive the maturity proceeds, till the time you’ve paid the premium along with the bonus at the end of the term.
If you close the policy before three years, you will lose all the money. After three years, you will only need to pay the surrender charges. In the case of ULIPs, you can stop paying premiums before five years and the policy will automatically lapse. The investment will then be shifted to a Discontinuance Policy Fund. It will then earn 3.5-4% and you can claim it after five years.
Retirement may mean the loss of a regular flow of income. But with the right money moves, the silver years can be truly blissful and rewarding.
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