| Parameter |
Conventional insurance plans |
Pension Plans |
| Maturity payouts |
Full maturity amount received by the individual |
Only up to one-third of the maturity amt can be withdrawn. Remaining 2/3rd amt has to be compulsorily invested in an annuity |
| Death benefits |
Full maturity amount received by the nominees/ beneficiaries |
Nominees/ beneficiaries have the option of receiving either the entire maturity amt or investing up to 2/3rd of the amt in an annuity |
| Tax benefits |
Deduction up to Rs 100,000 available under Section 80C |
Deduction up to Rs 10,000 available under Section 80CCC |
| Taxation of maturity payouts |
Entire maturity amt treated as tax free in the hands of the receiver |
Up to 1/3rd of the maturity amt, if withdrawn, is treated as tax-free. Pension received on the remaining 2/3rd amt is taxed as per the individual’s tax slab |
| Stream of income |
Entire maturity amt/ death benefit received in one go. No provision for a stream of income by way of pension |
On maturity, provides for a regular stream of income. In case of an eventuality, option of pension benefits available |
What are pension schemes?
Policies that offer money to the insured at the retirement age.
If death occurs during the policy term, his nominee gets the amount – lump sum or as annuity.
Pension plans (also referred to as retirement plans) are offered by insurance companies to help individuals build a retirement corpus. On maturity this corpus is invested for generating a regular income stream, which is referred to as pension or annuity.
Pension plans are distinct from life insurance plans, which are taken to cover risk in case of an unfortunate event.
Classified as immediate or deferred pension plans.
Here are some of the differences between a traditional insurance policy and pension plans.
