Do Pension Plans Allow any Death Benefits?
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Do Pension Plans Allow any Death Benefits?

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  • 30th Nov 2021
  • 353

Do Pension Plans Allow any Death Benefits?

Summary:

The purpose of a pension plan is to provide a stable monthly income post-retirement. Unfortunately, life is full of uncertain events. So, what are the death benefits available for various pension plans?

Content:

The nature and magnitude of death benefits differ from policy to policy. It is primarily dependent on the terms and conditions of each scheme. Here is the list of the commonly available pension plans in India and the death benefits that each of them offers.

Types of Pension Plans – Death Benefits

Generally, you will find the following types of pension plans in India.

1) Deferred Annuity:

Basic Feature: A regular premium or one-time premium is charged. The phase in which you pay the premium is called the accumulation phase. After this phase ends, the pay-out starts. Only the insured is allowed to receive monthly income out of this scheme.

Death Benefit: Every insurer has different policies. Generally, the monthly payments are discontinued if the annuity is in the pay-out phase.

2) Immediate Annuity:

Basic Feature: A single premium is charged under this scheme. Your monthly pay-outs start immediately. You can choose your favourite annuity plan from a range of options.

Death Benefit: The monthly payments are ceased, and the nominee is entitled to receive the balance corpus if the insured dies within the policy tenure.

3) Annuity Certain

Basic Feature: The basic features are the same as a deferred annuity except that the annuity is payable for a certain period.

Death Benefit: If the insured dies within the policy period, the annuity payments are continued to the nominee.

4) Guaranteed Period Annuity:

Basic Feature: You can make a regular or one-time payment just like the deferred policy. The period of annuity pay-outs is predefined. Generally, the guarantee period is in multiples of 5 years.

Death Benefit: In case the insured dies before the completion of the guarantee period, the annuity is paid to the nominee until the guarantee period expires.

5) Life Annuity:

Basic Feature: As the name suggests, the monthly payments are linked to the insured’s life. But this plan gives you two options to choose from,

a) With spouse

b) Without spouse

Death Benefit:

With Spouse: The spouse of the insured is entitled to receive the monthly payments after the death of the insured.

Without Spouse: The annuity payments are ceased after the death of the insured.

6) Unit-Linked Insurance Plans

Basic Feature: These are investment options linked to an insurance policy. You have the option to select the fund in which you want to invest your money. At the same time, one portion of the premiums is charged as a mortality fee to provide a life cover.

Death Benefit:

a) Regular ULIPs: If the insured dies within the policy period, then the sum assured and the invested corpus are paid to the nominee.

b) Whole-Life ULIPs: The amount stays invested for the entire lifetime of the policyholder. Tax-free partial withdrawal is allowed post-retirement. The nominee receives the remaining corpus after the death of the policyholder.

7) National Pension Scheme:

Basic Feature: You can view this as a state-owned ULIP scheme. Handled by NSDL, you can invest an amount at regular intervals, and this amount remains invested until your retirement. Its purpose is to give stability to you post-retirement.

Death Benefit: A lumpsum withdrawal of 60% is allowed after retirement, and you can purchase an annuity with the remaining corpus. Unfortunately, if the subscriber passes away before encashing the scheme, the nominee or legal heir can withdraw the entire corpus in lumpsum.

Each of the plans has different pros and cons. Therefore, check their detailed features online before choosing the best plan that suits your requirements.

- A Consumer Education Initiative series by Kotak Life

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