Annuities and Pension Plan: Build your net worth with protection.
Retirement is an inevitable stage that comes in every working individual’s life. It is a stage in life that is likely to bring feelings of apprehension, especially in terms of finances. Now, that regular paycheck will no longer be there as most of the Government organisations have abandoned pension for their employees, maintaining one’s lifestyle and meeting expenses is a valid worry which will be in every retired individual’s mind. However, Insurance Companies brings a special product designed specially to provide a regular income after you’ve retired, and in some cases, also provide insurance cover. Here are some important things which can help you decide on which pension plans are best suited for you.
Types of Annuity/Pension Plans.
Deferred Annuity : Here the annuitant pays premiums till the policy term is over. After its term, the annuitant will start receiving the pension. No tax is levied on the amount the annuitant invests. You can make a one-time payment or make regular contributions towards the plan.
Immediate Annuity : The annuitant has to deposit a large amount and the pension will begin immediately. The annuitant can avail tax benefits prevailing in India.
With & Without Cover : Pension Plan ‘With cover’ will give you a life cover, a lump sum amount is paid to your family in the event of your death. ‘Without cover’ implies you do not get any life cover. The amount built till the date of your death is paid to your dependents. Deferred annuity is with cover and immediate annuity plans are without cover.
National Pension Scheme : This is introduced by the government. You have the option of withdrawing 60% of the amount at retirement and the rest is used to purchase annuity. The maturity amount is not tax free though.
Riders with Term Insurance: Most pension plans come with add-on riders which can be taken to enhance the benefits provided by the plan. Some of the commonly available riders include :
Accidental death and dismemberment rider
Critical illness rider
Waiver of premium rider
How to choose the Right Pension Plan
With the variety of pension plans available in the market, it could be a challenge to choose the one which suits your requirement best. However, before you invest in a pension plan, there are some basic parameters you must evaluate
Returns : The most important part of any investment is the return it provides. Chose a pension only after you have a fair idea about the returns it would provide. Always keep in mind that if returns are guaranteed, the rate of returns will be low. Choose an option which provides high returns.
Liquidity : While most pension plans will have a lock-in period, during which you cannot withdraw the invested funds, there may be some plans available which offer a certain degree of flexibility in terms of withdrawal.
Tax Benefits : Insurance premium payments paid towards the plan can help you save on tax. The same goes for pension plans. However, the annuity accumulated in tax-free but the annuity remains taxable in the hand of the recipient.
Investment Mix : This factor comes into play only with regard to pension plans which are offered as part of a mutual fund. Find out the investment mix offered by the pension plan. While usually, the schemes are balanced, they may change over time.
Additional Benefits : Retirement plans offer are often accompanied by a string of additional benefits like life cover, riders like critical insurance, accidental etc. Find out the additional benefits which different plans offer before you make your selection.
Yes, Pension Plans do provide tax benefits to the policy holder. Under section 80CCC of the Income Tax Act, premiums which you pay towards your Pension Plan will be subject to deduction up to the maximum amount of Rs 10,000 on your taxable income.
In a pension plan, Death benefit is defined as the amount which will be paid on the passing away of the insured to the beneficiary of the insured, named in the policy.
An annuity is the term used to define the systematic payouts which you receive from your pension plan after your retirement. Most pension plans will allow individuals to avail annuity payouts on a monthly, quarterly, half-yearly or yearly basis.
Yes, online payment of premium can be done very easily. Most insurers do have a secure payment system in place to enable policy holders to pay their premiums online in a timely manner, without having to visit the branch office.
If you wish to change your premium payment frequency, you are advised to contact your insurance provider for the same as the facility may or may not be allowed by different insurers.
An annuity is an insurance product that pays income and can be used as a part of retirement planning. You need to make an investment in the annuity and it makes payments to you on a future date. The payments are determined on the length of your payment period.
Early withdrawal from retirement plans may be allowed. However, there are certain government regulations applicable on early withdrawal from retirement policies. Do check with your insurer regarding early withdrawals before you invest in a certain plan.
Provision of Regular Income Post Retirement- :
One of the biggest benefits of a pension plan is that it provides incomes after retirement. Pension schemes available in India help you cover your living expenses post retirement by providing a guaranteed income. With the variety of pension plans available out there, you can choose from one which suits your needs best. While some plans provide you with lifelong income, there are others which offer better returns.
Funds at Times of Need – :
Some pension plans provide partial lump sum payments which can help you meet major expenses through life. Before your retirement, you may have several major expenses to take care of life purchasing a house, financing your child’s education, etc. Before you choose a policy, make sure you go over the details of the policy so you know exactly what you will be getting from it.
Tax Benefits – :
Investing in an insurance policy comes with a set of tax benefits which you can avail. The same applies to retirement insurance plans. Check all the policies which you may have short-listed for the tax benefits they offer. Investing in a pension plan from an early age can help you save considerably on tax payments. Check your policy details to find out and understand the ways in which you may benefit from the available provisions of tax exemption under Section 80C of the Income Tax Act.
Insurance Protection – :
In addition to providing income post retirement, pension plans also provide insurance cover. This is especially useful to provide protection in the unfortunate event of a death following which the family’s income will be protected. This is helpful so that the surviving spouse does not have to undergo the financial burden following an unfortunate event.
• Life Insurance Claim Process
The main purpose of taking an insurance policy is that it should come in use in times of crisis.
Death claim settlement process
Step One: Intimation to the insurance company about the claim.
The nominee should inform the insurance company as soon as possible to enable the insurance company to start with the claim process. The details required for intimation are policy number, name of the insured, date of death, cause of death, place of death, name of the nominee, etc. The claim intimation form can be obtained from us or even by downloading it from the insurance company website.
Step Two: Documents required
1. The nominee will be asked to furnish the following documents:
2. Death certificate
3. Age of the life insured (if not already given)
4. Original Policy document
5. Any other document as per the requirement of the particular insurer or case-related.
6. For early death claims i.e. the claim that has arisen within three years of the policy is in force the company will do an extra investigation to ensure it is a genuine claim. They might do the following:
>> Check with the hospital if the deceased was admitted to the hospital.
>> In case of an air crash confirmation from the airline, authorities check if the policyholder was a passenger on the plane.
>> In case of death from medical causes, the insurance company will ask the hospital to provide doctor's certificate, treatment records etc If the policyholder dies due to murder, suicide, accident then police FIR report, post mortem report etc shall be required.
Step Three: Submission of required Documents for Claim Processing
For quicker claim processing, the nominee must submit complete documentation as early as possible and any other documents that the company needs to pass the claim.
Step Four: Settlement of Claim
As per the regulation 8 of the IRDAI (Policy holder's Interest) Regulations, 2002, the insurer is obligated to settle a claim within 30 days of receipt of all necessary documents including extra documents sought by the insurer. If the claim requires further investigation, the insurer needs to complete its procedures within 6 months from receiving the written intimation of claim.
• Maturity & Survival Claims
The payment made by the insurance company on completion of the term of policy or maturity date is called maturity payment. The amount payable consists of sum assured plus any bonus/incentives.
The insurance company informs the policyholder in advance by sending bank discharge form for filling details in it. The form needs to be returned to the insurance company with an original policy document, ID proof, Cancelled Cheque and copy of passbook.
• Rider Claims
Different riders can be attached to the base life insurance policy for enhanced protection. The riders can be an accidental rider, critical illness rider, waiver of premium rider etc. For different riders, different claim proceedings are required. Some riders may be valid with the death claim like accidental death rider or some riders need to processed standalone like a waiver of premium rider in case of disability.
For Critical Illness Rider- necessary medical documents such as first diagnosis report, Doctor's report, etc are required. For Accidental disability rider - a copy of FIR, Certificate of disability by the treating doctor, doctor's report etc are required.