Trap 16. ‘Ladder Life Plans For Regular Retirement Income’

That insurance is mis-sold is a well-known fact. One of the usual ways of doing it is when an agent tells you that you should buy multiple policies throughout your life and ladder them in a way that they mature one after another in your retirement years, providing you regular income. This usually happens with traditional life policies.

But what they don’t tell you is that traditional policies aren’t the best of instruments in terms of returns.

The problem starts with a lack of understanding about the difference between investment and insurance. An investment involves putting your money in an asset to earn future income. Insurance is a means of protection for your family or assets.

While guaranteed returns in retirement is what most aim for, laddering your insurance policies does not make sense. One, the returns are sub-par compared to some other instruments. Two, your portfolio will be heavily tilted towards insurance and will not be adequately diversified to give the most efficient returns.

If you are not comfortable with equities and do not know how to handle your cash flow, buying an annuity plan would be a better idea. Says Kapil Mehta, co-founder, SecureNow, an insurance aggregator: “Separate insurance policies are not needed. A pension plan allows for a wide variety of retirement payment opportunities within one policy itself. You could have annual payments, fixed term payments and escalating payments among other options. So, complicated laddering with multiple insurance policies is not needed.”

If all this is too complicated for you, rely on a financial advisor.