How to go for the right annuity plan?

How to go for the right annuity plan?

Retirement is considered as second innings of life. In the first innings, a person strives to fulfill his career aspirations and is busy in taking care of his responsibilities towards his family. He has set financial obligations like EMIs, children’s education and works hard enough to achieve them. Once he retires, he starts living for himself. The unfulfilled dreams like going on a vacation or serving the society takes a priority. To fulfill these aspirations, one should start planning for retirement as soon as possible. The best practice is to start investing from the time you start earning.

Post retirement, the regular pay checks will no longer exist. The most important concern becomes to maintain your lifestyle. Though you might have savings in your EPF (Employee Provident Fund A/c), but it could be inadequate as the contribution is restricted to 12% of your basic salary every month. Taking a pension plan is undeniably a must for securing your retirement.

What is a Pension Plan?

Pension plans are annuity by nature which gives the policy holder a fixed sum of money at regular intervals. These intervals could be monthly, quarterly, half yearly or yearly.

Who is eligible to take this Plan?

Every individual is eligible to take a pension policy. However, it is restricted to a maximum entry age of 35-75 years. This restriction varies for different insurance companies.

Are pension plans divided into phases?

Yes, pension plans are divided into two phases. One is the accumulation phase in which the policy holder pays a lump sum amount or regular payments during which the wealth is accumulated. Other is the annuity phase in which the policy holder enjoys the accumulated wealth by getting a fixed sum of money every month.

What are the types of pension plan?

Broadly, pension schemes can be categorized as below :

  1. Deferred Annuity
  2. Immediate Annuity
  3. With or Without life Cover Annuity
  4. National Pension Scheme

Different insurance service providers offer variation in the pension schemes.

Let us explain one by one the above types of pension plans.

  1. Deferred Annuity

In this pension plan, you will have to pay a fixed amount at every interval generally, once in a year. You can also opt for single premium pension plan wherein you pay a lump sum amount at the time of taking the policy. Tax benefit can be availed on the premium paid under this plan.

  1. Immediate Annuity

As the name goes, the pension will begin immediately. For the purpose of availing immediate annuity, you will have to pay huge sum of money. In case of unusual event like demise of the policy holder, the annuity will be paid to the nominee.

  1. With or Without life cover annuity

In pension plans with life cover, a sum assured is paid to the nominee in case of untimely death of the policy holder. This cover is provided on deferred annuity plans during the accumulation phase.

In case of without cover annuity plans, no sum assured is given to the nominee in case of death of policy holder. However, the nominee receives the accumulated premiums paid by the policy holder.

  1. National Pension Scheme

This scheme is introduced by the government of India and is being managed by PFRDA (Pension fund regulatory and development authority).  It is a voluntary scheme in which all citizens of India can invest.

With so many options available in the market for pension plans, it becomes a cumbersome job to opt for the best pension plan. If you have not planned for your retirement yet, you should opt for the best single premium pension plan in which you are required to pay the premium only once and enjoy complete pension benefits in the annuity phase.

Benefits of opting for Single premium plans are :

  • Beneficial to those who don’t have a stable cash inflow or fixed income
  • No need to remember the premium dates for renewal
  • Good for seasonal business owners

The tax benefits of single premium policies are in line with regular pension plans. The premium paid and maturity benefits are exempt under the income tax act.

However, the premium paid should not exceed 20% of the sum assured. In case the premium exceeds 20% of the sum assured, the balance amount will not be allowed as deduction under the income tax act. Also, the maturity benefit cannot be availed.

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