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Pension Insurance FAQs
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Q- What is a pension plan?
A- Pension plans also called retirement plans are designed to generate regular income for individuals after retirement. They are taken to compensate for the income in the retirement years. It consists of two stages namely accumulation phase  and income phase .

Q- How is pension plan different from other life insurance plans?
A- The basic difference lies in the purpose. Life insurance plans cover the risk in case of an unfortunate event while a pension plan is taken to guarantee regular income, in case of survival, after retirement and remains financially independent. The insured receives full maturity amount at the end of the policy but in pension plans one can only withdraw only up to 1/3rd of the corpus. Here the maturity amount, whole or at least 2/3rd of it is used to buy annuity or pension.

Q- How does a pension plan work?
A- You invest in a Pension plan over the time to build a corpus just like in an investment linked life insurance. At the decided vesting date , or the retirement date, you buy Annuity or pension with the corpus built through your investments. You can use the entire amount for purchasing annuity or withdraw up to 1/3rd of the amount and use the remaining 2/3rd for pension. Insurance companies offer various annuity options to suit your requirement of receiving pension.

Q- What is vesting date?
A- Vesting date is the time when you decide to end the accumulation phase and begin the income phase. It is largely based on your age and chosen date of retirement. It may be called retirement date and marks the end of accumulation phase and beginning of annuitization or the income phase.

Q- What is accumulation phase?
A- Accumulation phase is the time during which the corpus is built for pension. During this period the money is paid to the Insurer annually or a single time in a single pay plan and it multiplies based on the type of investment option chosen. It ends on the vesting date.

Q- What is annuitization phase?
A- It is also called the income phase. It starts after the accumulation phase is over. The built corpus is used to buy annuities to provide for regular income for the pre decided duration.

Q- What is annuity?
A- Annuity can be defined as regular income after retirement, generated from money invested by you for the purpose. Annuity can be immediate or deferred depending upon your retirement age.

Q- What is deferred annuity?
A- Deferred annuity is when there is a waiting period after investment before you start receiving the pension. It commences after the accumulation phase (also called the deferment phase) is over. The premium paid can be regular or single. Deferred annuity plans are ideal if you are planning for retirement early in life.

Q- What is immediate annuity?
A- Immediate Annuity plans, commence within one year of having paid the premium, generally a single premium. It is most suited for people who have retired or are about to retire and wish to use the retirement benefits or a big lump sum amount to get regular income.

Q- What are the different types of pension or annuities available?
A- Basic options to avail the annuity:

a.    Lifetime annuity – This ensures payment of a specific amount for a lifetime. In case of death of the insured, the nominee may get the purchase price of the annuity along with bonus or additions if applicable.

b.    Guaranteed period annuity – The insured is given annuity payments for a fixed number of years. In case of an eventuality, nominee receives the guaranteed payments. If the insured survives, he receives payments for lifetime.

c.    Annuity certain – The insured gets the payments for a fixed number of years. If the policy holder dies earlier than the end date, payments continue to the nominee.

d.    Joint life/ Last survivor annuity – The insured receives a pension till he is alive. In case of an eventuality, spouse receives the pension for lifetime.


Q- What is traditional pension plan?
A- A traditional Pension plan is one where the returns are fixed and guaranteed. You pay a fixed Premium for a definite number of years till you reach the vesting date to get fixed Maturity amount. This maturity amount, whole or at least up to 2/3rd is then used to buy annuity. Insurance companies also give out guaranteed additions and announce Bonus from time to time. This amount is also added to the maturity amount at the maturity date.

Q- What is ULPP?
A- ULPP or unit linked pension plan is where the growth during the accumulation phase is market based. Market ups and downs, your choice of funds and performance of the selected funds determine how your money grows.

Q- Is availing life cover mandatory in a pension plan?
A- Since January 2011, it has been made mandatory to have insurance with a Pension plan be it traditional or a ULPP . You have the choice to decide the level of insurance.

Q- What are the death benefits for various pension plans?
A- After the death of a pension plan holder, nominee receives death benefits depending upon the stage of the policy at the time of death of the insured. For a traditional plan , if the insured dies before reaching the vesting age, the sum assured is given to the nominee. If the policy holder dies after the income phase has begun, the remaining annuity amount is given to the nominee with a choice to receive the money in lump sum or buy further annuities from it. For a ULPP  if the insured dies before the vesting date, the nominee receives the higher of the sum assured and fund value at the time. If policy holder dies after the income phase has begun, the remaining annuity amount is given to the nominee with a choice to receive the money in lump sum or buy annuities from it.

 
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