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Retirement Plans in Life Insurance

Secure your future with retirement plans in life and term insurance. Learn more about the benefits and options available.


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Planning for a financially-free and independent retirement includes a lot of planning. This is where a Retirement or Pension Plan in life insurance can be helpful. A little foresight today can provide you with years of post-retirement financial freedom! Read ahead for an overview of this type of coverage.

What are Retirement Plans in life insurance?
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A Retirement Plan (RP) in life insurance gives you a steady income paid out in regular intervals over the course of your retirement. In a regular Retirement plan, you will receive a standard rate of return for the amount you invested.

For a Unit-linked Insurance Plan (ULIP), the policy would have invested your premium payments in stocks or funds which depend on the financial market. These returns could be higher, but may also incur a loss, depending on the status of the market. Here, a retirement plan offers you financial security, a steady income, and a way to enjoy your Golden Years.

You can enjoy tax benefits in your RP as well, when you claim deductions on your premium payments. In addition, your pension payments are also tax-free, up to a certain limit.

Types of Retirement Plan in life insurance
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The following are the two main types of Retirement Plans in life insurance. 

1. Pension Plans
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A Pension Plan is an investment plan that helps you save money over several years. When you retire, you can enjoy the fruit of your labour through a steady income. You are financially free and can stay independent with your hard-earned money well after you stop earning, or generating cash flow. Here are the types of Pension Plans that offer different features to suit individual lifestyles and needs post-retirement. 

In a Deferred Annuity Pension Plan, you get to create a corpus when you make daily or lump sum premium payments. The premiums you pay for keep accumulating that you can enjoy when you retire. What's more, with a Deferred Annuity Pension Plan, you can enjoy significant tax benefits.

An Immediate Annuity, as the name suggests, is paid out to you immediately. This works when you pay a lump sum amount, when you start receiving annuities right away, as your pension.

An Annuity Certain offers you regular pension payments for a certain term. You may get this payment, or after you pass away, your beneficiaries will receive this amount. 

The National Pension Scheme is a Government of India scheme for pensioners. By purchasing this NPS plan when you're working, you get to save your money into your pension account. You can enjoy this pension account when you retire.

A Life Annuity plan works until your passing. You can select the "with spouse" option to ensure that your spouse receives your pension payout when you pass away. 

You get the features of lifetime coverage and a savings component in a Life Insurance in Pension Plan. If you pass away while this policy is active, your beneficiaries will receive a lump sum payout.

Usually, pension and retirement plans offer coverage for around 70 to 80 years. In a Whole Life ULIP, you're covered for life, and your family will receive a death benefit.

2. Annuity Plans
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Another type of Retirement Plan in Life Insurance are the Annuity Plans, that secure your financial future. You can be sure of regular payouts for as long as you live. Pension Plans have an accumulation phase where you pay into the policy at regular intervals. You can buy an Annuity Plan with these payments when you retire. Annuity Plans offer you regular payouts depending on your insurance company.

How do Pension Plans work?
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When you purchase a Pension Plan in Life Insurance, you have to pay towards your pension. This amount can be from your plan's investment component, or by paying your premium. Your payment will be directed towards investments you choose. These investments will run for a certain term, and when they end (also known as maturity) you'll receive your pension payment.

A Retirement or Pension Plan in Life Insurance can be either traditional or unit-linked (ULIP).  These plans work by helping you set up a corpus with your regular premium payments for a certain number of years. When your Retirement Plan ends (at its maturity date) or when you retire, you'll get all of the funds you poured in, as your regular pension payments.

What are the features of Retirement Plans?
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Retirement Plans have several useful features that will make your retirement smooth.

Steady flow of income
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A Pension Plan gives you a much-needed steady source of income after you retire. For instance, in a Deferred Plan, you'll get your money after you retire, and in an Immediate Plan, you will get access to your money as soon as you start paying your premiums.

Vesting age
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A vesting age is when you will start getting your monthly pension payout. Pension Plans in India generally offer a starting vesting age of around 40 to 50 years, with the average vesting age being 70 years. Vesting ages are flexible, and you can choose your lower and upper limit for your monthly payouts.

Surrender value
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A surrender value is the amount you will get when you terminate your plan. Fees and dues will be deducted from the amount according to insurance companies. When you purchase a Pension Plan, ideally, you shouldn't surrender your plan while it is active, or else your benefits and dues will be waived. However, you are eligible for some amount of the surrender value if you want to terminate your plan.

Accumulation period
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Your accumulation period is how long it takes to build a substantial nest egg in your RP for when you retire. You can pay your premiums in a lump sum, or in convenient monthly payments. Your payments will be debited from your accumulated corpus.

Payment period
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Your payment term post-retirement is your RP payment period. If you receive your pension when you're between 60 and 80 years old, your RP payout period is 20 years. Many RPs have accumulation and payment periods, so be sure to check with your insurance company beforehand.

What are the benefits of Retirement Plans?
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Guaranteed vesting benefit
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In a RP, you're assured of a steady income after you retire. Your vesting years are your best years, when you get regular payouts from the premiums you paid for in the accumulation period.

Death benefit
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As with all insurance policies, RPs offer your beneficiaries a death benefit when you pass away. Your loved ones will get the sum assured from your RP, or the death benefit, after you're gone.

Flexible premium payment terms
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In a RP, you can choose your premium payment frequencies. The flexibility of these premium payments make it easier to pay them during your accumulation period.

Customise your Retirement Plan
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You can purchase additional riders for your RP to fit your lifestyle, especially after you retire. Some riders offer your family additional benefits and your sum assured.

Tax Benefits
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Pension Plans comply with Section 80CCC of the Income Tax Act of 1961. Section 80CCC comes under the 80C category, which has a tax deduction that covers up to Rs. one and a half lakh per year.

Pension Plans that are listed under Section 10 (23AAB) can get the tax deduction outlined in Section 80CCC. If you want to pay towards an Annuity Plan or other Pension Fund, they are also eligible for tax deductions.

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Frequently Asked Questions (FAQs)
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Here’s a section featuring common questions and answers related to Retirement Plans in life insurance.


Why do I need a Retirement Plan in life insurance?

A Retirement Plan in Life Insurance offers you a source of regular income after you retire. You can stay independent and financially free long after you stop working! 

What are the tax benefits of a Retirement Plan in life insurance? 

Under Section 80CCC of the Indian Income Tax Act, your paid premiums offer you tax deduction of up to a maximum of Rs 10,000 on your taxable income.

How do Retirement Insurance Plans work?

You pay a certain amount monthly frequently to build a corpus fund. This grows your capital through the investment component of your Retirement Plan. When you retire, you will receive regular payments from this corpus.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.