Treat Insurance And Investment Separate For Building Retirement Corpus

Objectives
The first manner, in which both these areas need to be considered, deals with the objective of the actions. When it comes to insurance one needs to ensure that the dependants have adequate financial resources available in case there is an unfortunate event involving the earning member of a family. There might be some difference in the types of policies, but the real purpose of insurance should not be forgotten as the insurance cover is meant to provide funds for this purpose. On the other hand, when it comes to retirement there is a need to ensure that adequate amounts have been accumulated in order to generate some income (say Rs 1.5 crore) for a person after he/she retires. While protection is of the utmost importance in insurance, for retirement it is good growth, and both these objectives are slightly different. This becomes the starting point of the entire exercise to ensure that there is a proper way of tackling both these issues.

Impact of survival

In most cases, a very large corpus will not be built up with the help of insurance if the person lives long enough. Thus there could be a sum of Rs 40 lakh available through insurance, but since the main concern is that the required sum assured should be available in a short period of time, the efforts need to be made to ensure an adequate planning for this area. On the other hand, the entire focus of the retirement planning effort is on ensuring a large corpus available at a later stage. The real danger is when one looks at insurance with the only objective of growing of corpus, the amount of insurance cover could turn out to be inadequate (in our example, Rs 40 lakh versus Rs 1.5 crore) because this will require a different focus. If the person lives long enough and insurance is the only route that is relied on then there could also be a reverse situation where the retirement amount would not be very adequate to ensure a better standard of living when it is actually needed.

Returns
In case of retirement corpus, there should be a large amount to be accumulated and this calls for a completely different approach by an investor. On one side, this involves slow contribution of amounts consistently and regularly that will build up into the corpus and which will be able to generate returns in the day to come (balanced approach to build corpus.) While investment might be an objective for some insurance policy, there will be a conflict of interests involved because the real focus is completely different. Thus the right balance is essential for the entire portfolio that is available for this purpose. This might not be possible for the insurance amount and even if there is a unit-linked insurance amount considered it would still require a lot of work. The best solution in such a situation is to consider both of these separately and then use them separately to achieve the respective objective. So, insurance should be present to ensure that dependants are protected while the real long-term savings will be accumulated through separate retirement planning.