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12 key definitions you should know if you buying a Pension Plan

12 key definitions you should know if you buying a Pension Plan

Retirement or pension plans are a time-tested and reliable means of long-term investment that offer returns and flexibility. It also provides the option to withdraw a part of your corpus as a lump sum and

*Disclaimer

: Axis Max Life Smart Wealth Plan | A Non-Linked, Non-Participating, Individual Life Insurance Savings Plan | @₹31,83,264 as lump sum at the end of 20 years, for a 30 years old healthy male

Written by

Kriti Arora

Insurance Writer

Kriti is a content marketing and branding expert with more than 13 years of rich experience across BFSI and Telecom industries. She is currently leading Digital Creative Strategy for Axis Max Life Insurance.

Reviewed by

Vaibhav Kumar

Insurance Expert

With over 15 years in life insurance, Vaibhav is a recognized products and digital leader for driving innovation at Axis Max Life. He's played a pivotal role in developing new business lines and implementing successful D2C strategies.

1. Pension Plan – An investment option for an income after retirement

A pension plan is any investment planning scheme that provides you with an income after retirement. At its most basic level, a pension is a tax-efficient savings plan that you cannot receive any benefits from until a minimum age of 50. Depending upon the type of policy you have, you could receive pension payments for a defined period of time, or for the length of your natural life. Pension schemes can be provided by your employer, personal pension policies purchased through an insurance company, or via the state. In India, like in some countries, the term ‘Superannuation Fund’ is used as a substitute for a pension plan.

2. Premium – The amount you invest in a policy

In pension plans, as with all insurance policies, the premium is the amount invested towards a policy purchased from an insurance company. The premium is income for the insurance company, but it also represents a liability, in that the insurer must provide coverage for claims being made against the policy.

A ‘single premium policy’ requires a single lump-sum payment and one that remains invested for the length of the policy term. A ‘regular premium policy’ obliges you to make payment either annually, quarterly or monthly for the length of the policy term.

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Affordable Premiums

While you may think that term insurance with a sum assured of Rs 2 crores will be unaffordable, it’s quite the opposite. Rather, the term life insurance plan is economical, as the monthly premium is typically around Rs 1,000 for the young and healthy. Plus, you can save a few extra bucks on the premium if you invest at an early age.

Acts As a Financial Cushion

If you’re the sole breadwinner of your family or you have financial dependents, a 2-crore term insurance plan will act as a financial cushion for your loved ones. The death benefit can be used for household expenses, education, loans, and liabilities, ensuring your family’s financial requirements are met even if you’re not around.

Wide Coverage

Even though a 2 crore life insurance policy might be sufficient, policyholders also have the option to opt for riders such as critical illness benefit*, accidental death benefit*, and waiver of premium. This option not only enhances your coverage but is also affordable.

More Savings & Investments

Since a term insurance plan for 2 crores is available at nominal premiums, you can increase your long-term savings and investments such as mutual funds, ULIPs, or retirement & pension plans so you can enjoy your golden years comfortably. However, to do so, it is best advisable to purchase a 2 crore life insurance policy as early as possible.

3. Riders – Additional features you can add to your plan

‘Riders’ are optional features or benefits you can choose to add to your pension plan at an additional cost. riders provide the option for you to expand coverage to meet your specific needs.

A term insurance policy is a life insurance plan that provides life coverage for a fixed/pre-determined duration or ‘term’ – hence the name.
If the policyholder dies while the term plan is in force, the beneficiary will be eligible to receive a death benefit from the insurance provider. For instance, if you purchase a term insurance plan for 2 crores, the entire sum assured will be paid to the nominee as per the policy terms & conditions.
To enjoy the benefits of the 2-year term plan, you will have to pay a fixed premium monthly, quarterly, half-yearly, or annually, depending on your preference. However, the premium amount for term insurance 2 crore is based on a few factors such as your age, gender, annual income, and smoking habits.
While the premium amount stays the same during the policy period, your term insurance plan can lapse if you don’t pay the premium.
However, if the insured individual survives the term plan, the policy will come to an end unless you opt for a survival or maturity benefit rider.

So, a term insurance plan for 2 crores is an ideal choice for anyone looking to secure their loved one’s future. Plus, it is an economical investment that won’t be a burden while also giving you much-needed peace of mind.

4. Beneficiary (or Nominee) – The person/persons who benefit from the policy you take

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This refers to the person or persons who receive the Death Benefit in case of the demise of the policyholder. If the nominee is a minor at the time when the policy began, a guardian can be appointed until such time the nominee reaches maturity. You can also have multiple nominees and specify the share (%) each one of the nominees receives.

1. Your Age

Since older people are more prone to illnesses and health conditions, the term insurance premium is comparatively higher, which is why it is best advisable to buy term insurance for 2 crores at a younger age. Plus, it will also ensure that your loved ones are financially secured for a longer period. But if you are buying a 2-crore term insurance plan during your 40s or 50s, choose policies offering add-on riders for enhanced coverage.

2. Annual Income

Your annual income plays a crucial role in determining the appropriate life cover amount. Since it impacts your general standard of lifestyle, financial planning and your premium paying capability, to an extent; taking a life cover that is suitable for your annual income is the smart thing to do. You can use the Axis Max Life’s online insurance calculator to assess if 2 crore term insurance plan is for you.

3. Existing Loans & Liabilities

If you’re buying a 2 crore life insurance policy, it is important to factor in any existing liabilities that you may have. Be it an education loan, home loan, or car loan; it is essential to ensure that your term insurance plan will be sufficient to cover all such liabilities. Therefore, looking for the best term insurance plan for 2 crores is an excellent choice.

4. Financial Dependents

Whether you have parents, children, or a financially dependent spouse, it is vital to consider their financial needs and requirements before choosing a term insurance policy. However, a term insurance plan for 2 crores might be sufficient to ensure your family has a safety net to cover their financial obligations.

5. Accumulation Period – The time period of your pension plan

This is the length of time for which one invests in a pension plan of their choice. For example, if you purchase a plan that requires a monthly investment of Rs.10,000 over 30 years, the ‘term’ of 30 years is known as the ‘Investing Period’.

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Easy On Your Pocket

One of the greatest benefits of opting for a 2 crore term insurance plan is that it won’t burn a hole through your pocket. Since term plans are the purest form of life insurance, the premiums are quite affordable. Plus, this gives you the added benefit of focusing on long-term savings and investments.

Tax Exemption^#*

According to Section 10(10D) of the IT Act, the sum assured, or death benefit of term insurance policies are completely exempt from taxes. So, whether you have a term insurance plan worth Rs 50 lakhs or 5 crores, the payout, plus any additional bonuses will be tax-free – which is an added benefit to consider when buying a 2 crore life insurance policy.

#*Tax benefits are subject to changes in tax laws.

Easy Customization

Today, almost all insurance companies and providers offer add-on riders with term insurance 2 crore plans. You can opt for riders such as accidental death benefit*, maturity/survival benefit, and return of premium variant**, enabling you to customize and personalize the term plan according to your preferences and requirements.

Multiple Payout Options

Although insurance companies usually provide the payout for term insurance in lump sum, some insurers offer multiple payout options. For instance, you can either opt for a monthly income payout or receive the entire death benefit in lump sum, depending on your financial requirements at the time. However, you can even go for lump sum plus monthly income payout options for term insurance 2 crore policies.

6. Vesting Age – The age at which you start receiving a pension

The age at which you start receiving a pension in an insurance-cum-pension plan is known as the ‘Vesting Age’. For most pension plans, the vesting age does not come into force until the annuitant is 55 years of age.

If you’re in your late 20s or early 30s, it might be time to purchase a term insurance plan for 2 crores. The reason behind this is that term policy premiums are quite economical for individuals who are young and healthy. So, if you’ve just begun your career, buying a 2 crore term insurance plan is a great option.
Individuals who are the sole earning member of their family can should get a term insurance plan for 2 crores. Doing so is essential so that your loved ones have a financial cushion to fall back on in case of your untimely demise.
If your annual income is above Rs 5 lakhs, this term plan is ideal for you.
People who are the sole breadwinner of their families but also have financial dependents should can consider investing in term insurance plans for 2 crores.

Since term insurance plans are designed to provide financial backup, people with existing loans and liabilities should must evaluate purchasing a 2 crore term insurance plan. This will ensure that your family members have a safety net to fall back on and pay off any such liabilities in case of your untimely demise.

7. Fund Value – The amount due at the end of your investing period

The total amount due to you at the end of the agreed period of investment is known as the Fund Value. Depending on the type of pension plan you choose to invest in, some have a pre-defined fund value at the end of the investing period. For a pension plan that invests in the stock market, the fund value is the cumulative value of investments made on the day of the plan’s maturity.

8. Maturity Benefit – The amount you receive at the end of your investing period

The total amount you are eligible to receive following the end of the investing period is referred to as the ‘Maturity Benefit’. An alternative term for this is ‘Annuity Benefit’. In equity-linked pension plans, the higher value between the Fund Value and Guaranteed Maturity Benefit at the end of the investing period is the Maturity Benefit.

9. Loyalty Benefit – The amount an insured receives for keeping their plan through the investing period

The incentives given to the insured for keeping a policy in-force throughout the investing period is referred to as the ‘Loyalty Benefit’, provided your premium payments are on time and up-to-date. This benefit represents a portion of any monetary surpluses of the insurance company after valuation, which is shared with policyholders. This amount, usually a percentage of the sum assured. Loyalty benefits are given only for each year for which premiums are paid and added to the sum assured.

10. Death Benefit – The amount a beneficiary receives

The amount payable on a pension plan, annuity or life insurance to the beneficiary of the policy when the insured passes away while the policy is still in force is known as the Death Benefit. All pension plans carry a Death Benefit, though the quantum and structure of the payment to the beneficiary is determined by the type of plan held at the time of policyholder’s demise. Payment to beneficiaries could be in the form of a lump sum, or as a continuation of monthly or annual payments paid directly to them.

11. Transfer Value – The amount you receive when all charges and penalties are deducted

The current investment value and projected future value of your pension plan are important to you, but the amount you receive when all charges and penalties have deducted must be seriously considered if you move your plan elsewhere. This will provide a more realistic representation of the current position of your pension plan.

12. Annuity – A type of insurance plan that entitles you to a series of annual sums

An ‘Annuity’ is a written agreement between you (the annuity owner) and the insurance company. In return for your premium contributions, the insurance company agrees to provide either a regular income, the right to withdraw up to a certain percentage per year, or even a lump sum payment at some future time.

Contributions made to a pension plan are exempt under Section 80CCC up to a maximum ceiling of Rs.1.5 lakh.

Before investing in pension plans, knowledge of these key terms will help you understand the features of various pension plans and also help you make an informed decision.

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12 key definitions you should know if you buying a Pension Plan

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1. Pension Plan – An investment option for an income after retirement