What is a single premium pension plan?
As the name itself signifies, a single premium pension plan is basically a type of retirement pension plan where you only make a single lump sum premium payment for the entire duration of the plan. This one-time investment ensures that you are free from the hassle of making regular premium payments. The money invested compounds over time to create a retirement corpus and give you a consistent stream of income after retirement to manage living expenses.
Features of Single Premium Pension Plans
A single premium pension plan not only helps you build a retirement corpus but also provides benefits like broad coverage and pension plan tax benefits. Given below are some of the key features:
1. Consistent Cash Flow
Some pension plans offer a steady income that can help you meet your expenses. ..
2. Different Pay-out Options
Though the premium payment option is fixed, the plan provides flexibility to choose from varied payment choices. You can receive the entire sum as a lump sum, or opt for a regular income for a specified tenure or lifetime income.
3. Tax Savings
A single premium pension plan helps you to save tax under Section 80C and 80CCC of the Income Tax Act on the premium paid. You can use a pension calculator to get better knowledge about the amount to be invested to get maximum savings.
4. Joint Life Annuity
Under life insurance annuity plans you can choose from a single or a joint-life annuity. Joint-life option ensures that your spouse is also covered under the scheme, which means that the regular income will continue even when you’re not around.
Benefits of Choosing a Single-Premium Pension Plan
Here are some of the benefits that you get to enjoy by opting for one-time premium pension plans:
1. No Policy Lapse
With single premium plans, there’s absolutely no risk of the policy lapsing due to non-payment of premiums.
2. Simple and Hassle-free
Having to pay premiums regularly can take a toll on your finances. There’s no such financial burden with single premium plans.
3. Consistent and Assured Income
With a one-time premium pension plan, you can receive a steady and reliable flow of money that can substitute your income after retirement.
4. Additional Life Cover
The added life cover feature available in different types of pension plans ensures that your spouse or dependent is not left financially stranded in case of your untimely demise. Instead, the death benefit can give them the necessary economic help during those tough times.
5. Avail Loan
In case of an emergency, traditional savings plans allow the policyholder to borrow some amount against the policy, without breaking the savings.
6. Keep Up with Rising Costs
If you choose ULIPs, you can generate market-linked returns on your premiums. This can help you grow your savings by factoring in inflation.
Types of single premium pension plans in India
Now that you know what a single premium pension plan is, let’s take a look at the different types of pension plans that are available in India.
| Plan Type | Description | Key Features |
|---|
| Immediate annuity plans | A regular stream of pension payments starts immediately upon the payment of the single premium. This plan is ideal for people about to retire or have just retired to have a continual flow of money. | - A steady income source starts right after purchase
- Can choose from different payout options, including joint annuity option
|
| Deferred annuity plans | Annuity payments are paid out only after the expiry of a certain period of time. This is ideal for those who need a good retirement corpus. | - Income starts after a certain age, as decided in the policy
- Offers flexible deferment options
- Get insurance coverage during the policy tenure
- Enjoy tax benefits on premiums paid
|
| Single premium unit-linked insurance plans | The premium payment that you make is invested in a pension fund, with the units of the fund being allotted to you. | - Market-linked returns with growth potential
- Option to take part of the maturity benefit as a lump sum, the remaining amount used to purchase an annuity plan
- Get tax benefits on the premium paid
|
| Single premium endowment plans | The plan helps you create a corpus for your retirement without the risk of market volatility. | - Get a death benefit if you pass away during the policy tenure.
- On maturity, a maturity benefit is paid under the plan.
- The policy provides loans for emergencies.
- Some plans might offer the benefits in instalments that can help in creating a regular income.
|
How to Buy a Single-Premium Pension Plan?
Purchasing a single premium pension plan is a very straightforward process. Here’s a step-by-step to guide you through the entire process:
- Research and compare plans – Compare different single premium pension plans available in the market based on the features provided, returns expected against the premium and benefits offered. Choose the one that aligns well with your budget and retirement goals.
- Assess your retirement income needs – Think about how much a regular income stream is needed to manage monthly expenses and how much you need to invest for that. Use a pension calculator for accurate planning.
- Submit your proposal and await acceptance – Gather all the needful documents, fill out the proposal form and submit them to the chosen insurance company. The insurer will verify the documents and information provided before issuing the policy.
- Complete payment once approved – Once the application is approved, make the one-time payment to start receiving policy benefits and start building your post-retirement fortune.
- Choose the pay-out and annuity option – If the plan offers flexibility in payouts, choose the payout option depending on your needs. In the case of annuity plans, you can choose a suitable annuity payout mode.
Key Takeaways
- A single premium pension plan gives a steady source of income post-retirement against a one-time premium payment.
- Some plans can give you the flexibility to receive payouts in instalments, in lump sum, or in a combination of both. If you choose annuity plans, you can get annuity payouts.
- Some of the different types of pension plans include annuity plans, endowment plans, ULIPs, guaranteed income plans.
- Some of the benefits of pension plans include tax savings, building a retirement corpus, market-linked returns in the case of ULIPs, etc.
- To buy – compare plans, examine needs, submit documents, make payment and decide pay-out option.
Conclusion
With many advantages and different types to choose from, single premium pension plans are currently one of the preferred ways to secure your post-retirement life. That said, before opting for one, make sure to use a retirement planning calculator to help plan your way forward in a better manner.
FAQs
1. What is the minimum investment required in a single-premium pension plan?
The minimum investment needed varies from insurer to insurer. You can check with the insurance company to find the minimum single premium required for the policy.
2. Can NRIs invest in single-premium pension plans in India?
Yes, an NRI can invest in the plan using their NRE/NRO accounts. The investment must abide by the FEMA guidelines.
3. Are annuity payouts taxable?
Annuity payouts are treated as income and taxed under the appropriate tax slab rate. Maturity benefits enjoy tax deduction under Section 10(10D) subject to specific terms and conditions. Tax deductions on premiums are available under Section 80C and 80CCC.
4. What happens if the policyholder dies during the pension period?
If the policyholder dies during the annuity period, the spouse or secondary annuitant can continue to receive the regular annuity payout if the joint life option is selected.
5. How is a single-premium pension plan different from fixed deposits?
A single premium pension plan are life insurance plans where returns depend on the type of plan selected. Fixed deposits provide a fixed interest for a set period with no life cover or annuity payouts.
6. Is a loan facility available against a single-premium pension plan?
Savings-oriented traditional plans, like endowment plans, offer loan facility.
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