Final answer:
For Arpit's life insurance requirement, a Term Plan is recommended due to its focus on providing a pure death benefit at a cost-effective rate. For retirement, Arpit should start saving immediately, using the advantages of compound interest to build a significant retirement fund, aiming for an annual rate of return above inflation to meet approximately 70% of his pre-retirement income for a comfortable post-retirement life.
Step-by-step explanation:
Life Insurance Decision for Arpit
In considering the types of life insurance for Arpit, the main factor is that he seeks a Pure Risk Life Insurance cover of Rs 1.5 crore. A Term Plan would be most suitable, as it is specifically designed to provide a pure death benefit in case of the policyholder's demise within the term period, and it is generally the most cost-efficient option available.
ULIPs (Unit Linked Insurance Plans) combine investment and insurance, whereas Endowment plans also combine savings with insurance and typically offer lower returns compared to ULIPs invested in equity funds. For someone solely interested in risk cover without an investment component, a Term Plan is the advised choice.
Retirement Planning for Arpit
A retirement plan for Arpit, who wishes to retire by the age of 55, should focus on saving for old age early in his career. Utilizing the power of compound interest, Arpit should consider investing a portion of his income regularly into diversified portfolios or retirement accounts that offer a balance of growth potential and security, aiming for an annualized real rate of return that outpaces inflation.
Given that most financial advisers recommend saving around 70% of your pre-retirement income, Arpit should calculate his expected retirement expenses and plan his savings accordingly. Considering the time value of money, starting his retirement savings plan now will be advantageous, providing a larger corpus through the benefits of compound interest.