Questions

• What is a pension plan?
• Do pension plans offer life insurance protection?
• What is an Annuity?
• What are the different types of Annuity schemes available?

What is a pension plan?

A Pension plan is an investment plan, that helps an individual maintain their lifestyle, even when they have stopped working. On maturity the corpus arising out of funds invested, is used to generate a regular income stream, which is referred to as pension or annuity.

Do pension plans offer life insurance protection?

The individual can opt for a additional life insurance cover, along the regular pension payments. In case of an unfortunate event like Death, the nominee /beneficiary would get the funds.

What is an Annuity?

Annuity contract is an agreement under which the insurance company, in return for the payment of a certain sum, makes a series of agreed payments at regular intervals from a fixed date. This continues until the death of the individual on whose life the annuity is bought.

What are the different types of Annuity schemes available?

Pension plans come with various annuity options. We have explained them below:

1. Lifetime annuity without return of purchase price: The individual receives pension for as long as he lives. The pension ceases on occurrence of an eventuality and the insurance contract comes to an end
2. Life Time Annuity for life with a return of the purchase price:  The individual receives pension till he is alive. In the event of an eventuality, the purchase price of the annuity is paid out to the individual on maturity or his nominees/beneficiaries in case of death.
   For example, if the individual has opted for 'Lifetime annuity guaranteed for 15 years', and he meets with an eventuality after only 3 years, then his nominees will keep receiving annuity for the remaining 12 years (i.e. 15 years less 3 years). After the said 15-year period, the annuity will cease and the pension plan will draw to a close.
3. Annuity guaranteed for a specific number of years: The individual receives a pension for a certain number of years, irrespective of whether he is alive.
4. What does one receive as Death Benefit under Pension Plans? In case of pension plans with life cover, the nominee receives the sum assured and/or fund value, depending on the specific policy. The nominee has the flexibility of receiving the entire amount on maturity in cash and opting for an annuity.