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ULIP INSURANCE

Why Do You Need To Buy Retirement or Pension Plans?

Joan Mathews Joan Mathews 14 January 2020

Taking into account the rising inflation, high medical expenses and limited social security schemes for senior citizens, it becomes important to start retirement planning early. Read this article to understand how pension plans can help individuals lead a comfortable and financially secure life after retirement.

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Financial experts often advice clients to begin saving for retirement as soon as they start earning, but this generally falls on deaf ears. It has been observed that many people tend to get serious about creating a financial cushion when they reach their 50s. This can be like a runner participating in a race and only getting serious about winning when he or she enters the last lap. It is a very risky move - the chances of the individual winning the race are very unlikely. Similarly, creating a retirement plan at the last moment is never wise as the risk involved is significant. The sooner one starts saving, the better. In the market, one can find several products designed to help secure the golden years of the individual’s life.

What are Retirement/Pension Plans?

Life insurance companies offer pension and retirement plans (also known as annuities) that provide regular income after an individual has retired. Some of them provide insurance cover as well. There are two kinds of annuities offered by life insurance companies - deferred annuity and immediate annuity.

Deferred annuities are pension plans designed for long-term savings. The individual will be required to make a series of premium payments toward the plan and the pay-out will be deferred until sometime in the future. Deferred annuities have two phases - accumulation phase and vesting phase. In the accumulation phase, the individual will have to start investing and accumulating funds. This commences from the date when the first premium is paid. The vesting phase begins from the date when the policy benefits are paid out in the form of pension.

Immediate annuities do not have an accumulation phase - the plan starts working right from the vesting phase. It is purchased by paying a lump sum amount and the annuity payment starts right away, either for a limited term or lifetime. Besides the traditional pension plans, individuals have the option of investing in unit-linked pension plans or retirement plans. They are market-linked pension products offered by life insurance companies. Investors can decide on the fund's asset allocation on the basis of their risk profile. It can be 100% equity, 100% debt or a mix of the two. Unit linked pension plans are best-suited for people seeking a long-term retirement plan that doubles up as an investment.

Benefits and Features of Top Retirement Plans

  • SBI Life - Saral Pension - This is an individual, participating, non-linked, traditional pension plan by SBI Life Insurance.

  • Features:

    • Helps build a retirement corpus
    • Option of life cover through SBI Life - Preferred Term Rider
    • Pays out simple reversionary bonuses throughout the policy period
    • Option to extend the accumulation period
    • Option to defer the vesting date
  • Plan Benefits:

  • Vesting Benefit - On attaining the vesting age, the vesting benefit equal to the sum assured, vested simple reversionary bonus and terminal bonus (if any) shall be paid.

  • Death Benefit - In an event of the policyholder's demise, the death benefit proceeds will be higher of total premiums paid accumulated at an interest rate of 0.25% p.a.

Source: SBI Life website

  • HDFC Life Click 2 Retire - This is an online pension scheme that offers market linked returns to help achieve one's retirement goals.

  • Features:

    • Helps secure retirement with assured vesting benefit and gain from upside in the market
    • Lower vesting/maturity age of 45 years
    • Regular, limited pay and single pay options available
  • Plan Benefits:

  • Vesting Benefit - The pension plan vests at the end of the policy period, and the maturity (vesting) benefit shall be the higher of fund value or assured vesting benefit.

  • Death Benefit - In the event of the individual's demise during the policy term, your nominee shall receive the higher of Fund Value or 105 % of the total premiums paid till date.

Source: HDFC Life website

  • Guaranteed Lifetime Income Plan - This is a non-linked non-participating immediate annuity plan by Max Life Insurance.

  • Features

  • Guaranteed lifelong income

  • Pay-out options available - monthly, quarterly, half-yearly and yearly
  • Multiple annuity options
  • Return of purchase price

  • Plan Benefits:

On the death of annuitant(s), the nominee will receive 100% of the purchase price (excluding all applicable taxes, cesses and levies) in case of Single Life / Joint Life Annuity Plans with Return of Premium. This plan does not offer survival or maturity benefit. Source: Max Life Insurance website

Conclusion

Pension plans help users to save on a regular basis and invest wisely so that they are prepared for uncertainties. Prior to investing, individuals are advised to first note down their financial goals, consider present income and fix an amount to invest. Following this, they need to look into the different plans available and go through the benefits offered after maturity. Money should only be invested after thoroughly understanding the product.

Joan Mathews
Written by Joan Mathews
Joan has over 4 years of experience writing for the BFSI industry. She enjoys watching mystery TV series, listening to 80s classics and spending time with her furbabies.