What is retirement insurance?

Retirement insurance or plans are actually a type of life insurance
Retirement insurance policies, also known as retirement plans, are actually a type of life insurance with a similar objective to pension plans: to save for retirement, although in both cases they cover other contingencies, and, moreover, seek to gain a return on the savings deposited. However, there are major differences between retirement insurance policies and pension plans.
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Retirement insurance features

Retirement insurance policies or plans are life insurance savings products that cover contingencies of retirement, death or inability to work. Therefore, when taking out a retirement insurance policy, the customer must be aware that, in addition to saving for their retirement, they are also ensuring their economic stability and that of their family since. This is because, in the event of their death or disability, the insurance or retirement plan acts as life insurance, paying the insured capital to their beneficiaries or heirs.

Otherwise, they work just like a pension plan. The account holder makes regular payments (recurring premium mode) throughout the life of the retirement insurance, although it is also possible to make a single capital payment at the beginning of the contract (single premium mode). These contributions produce a yearly minimum return that may or may not be guaranteed, in addition to a variable return that will depend on the investments made by the managing entity.

However, aside from how they work, it is important to understand three key differences between retirement insurance policies and pension plans. These differences are related to tax treatment, availability of savings, and profitability.

Tax arrangements for retirement plans or insurance

Unlike with pension plans, payments to retirement insurance policies are not tax deductible.  Therefore, such payments are taxed in the same way as payments for a life insurance policy, although, as a particularity, when the capital is redeemed, the account holder will only be taxed on the yield generated by the contributions (the difference between the capital paid in and the premium paid out), not for the total received, as is the case with pension plans. If the policyholder and the beneficiary are the same, the tax will be paid in the personal income tax statement; otherwise Inheritance and Gift Tax will apply.

In addition, when withdrawing the money saved and the possible interest earned on it, you can opt to receive it as a lump sum or in regular payments as income. If you choose life annuities, the taxable amount will be reduced by certain coefficients based on the age of the recipient.

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Availability of the savings

The contributions to a retirement insurance policy or plan can be withdrawn at any time, provided that the contractual terms and conditions are fulfilled. Otherwise, it will be possible to access the capital and its possible

This is not the case with pension plans in which, except in the case of specific contingencies or exceptional circumstances, the money cannot be withdrawn until retirement.

Yield on contributions

The final major difference between a pension plan and a retirement plan or insurance is its profitability. In the first case, the customer can choose the risk they wish to assume in line with their investor profile and expected yield. In a retirement insurance this option does not exist and the yield is usually lower, but at the same time this product entails less risk to the customer's savings.
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