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Why You Should Buy a Pension Plan?

Updated On Jul 19, 2021

Whether you are a government employee or a business owner, consider yourself secure in terms of finance until you have an income. Once you retire, you won’t be left with a source of income. It is highly advisable to buy a pension plan so that you are not out of funds when you need them the most. 

Need more reasons to choose a pension plan? Do you think you are too financially secure to buy a pension plan? Well, here are a few reasons that make a pension plan a must for you. 

Reasons to Buy a Pension Plan 

The list of reasons includes:

  • Guaranteed Income After Retirement

    Your pension plan will ensure your income doesn’t stop flowing in. What’s best is that if you are earning a good sum and consider yourself financially stable, your pension plan will help you add to that income.

  • Saving Habit

    If you are yet to plan your retirement, buy a pension plan today itself! It is always advised to keep setting aside a certain portion of your income every month. You can use this amount to buy a pension plan and secure a good income for your life post retirement.

  • Investment & Insurance

    Your pension plan will offer you both, financial security as well as the core benefits of insurance. Always keep in mind that your pension plan will ultimately help your loved ones and dependents stay financially secure in case of your demise.

  • Wealth Intact for Loved Ones

    An insurance-led pension plan will help you provide for your family even when you are not around. Your family will be able to fulfill its various requirements met without worrying about finances. Most importantly, your loved ones won’t have to sell their assets and other belongings to ensure financial stability in your absence. 

Things to Remember

Here are a few things for you to keep note of while buying a pension plan:

  • It is you who decides the vesting age (in case of some plans). 
  • It is you who decides the premium paying term.
  • It is you who decides on the annuity term.
  • It is you who decides the type of pension plan or what combination to choose, based on your risk profile.
  • It is IRDA and PFRDA that regulate the pension plan.
  • Premium paid towards a pension plan will qualify for tax benefits.

Pension Plan Options Available

Some of the prime options available under pension plans are:

  1. National Pension Scheme (NPS)

NPS is a pension cum investment program launched by the Government of India. Buyers of NPS plan to invest in the NPS and withdraw up to 60% of their corpus once they turn 60 years.The balance would be returned in the form of a pension for life in the form of annuity payments.

  1. Traditional Pension Plan

Offered by many life insurance companies, the Traditional Pension Plan comes with four options. Regular pension plan, a pension plan with life cover, a pension plan with immediate annuity payments and a pension plan with deferred annuity payments are the four types. It must be noted that the premiums paid for these plans are invested in conservative government and debt securities.

  1. Unit-Linked Pension Plans

Those who have a high-risk appetite opt for United-Linked Pension Plans. In these plans, the investment component is represented by investing the funds in equity instruments. These plans do not come with a life assured component to cover the risk of premature death. 

Final Words

Now that you know the need to buy a pension plan and the options that you may come across, go ahead and make a choice right away! Make sure you consider all the aspects first to avoid inconvenience later.

Also read 

Mistakes To Avoid While Planning Retirement

7 Investment Options For Your Post-Retirement Needs

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.          

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