As we grow older, our focus shifts from accumulating wealth to achieving peace of mind and securing our financial future. For senior citizens, two popular choices are a pension scheme and term insurance. While the former assures a steady income after retirement, the latter gives protection to your loved ones in the event of your untimely demise.
Choosing between the two depends on your specific needs, responsibilities, and long-term goals. Let’s understand the key differences to help you decide what suits your stage of life better or whether having both can offer the balance you need.
What are Pension Schemes?
Pension schemes or retirement plans are designed to offer you a stable income during your golden years. These plans require you to contribute a fixed amount of your income (depending on your plan) during your earning years. You can choose to receive either a lump sum or monthly instalments or both once you retire, depending on the scheme or annuity option opted for.
Common Types in India:
- Government-backed plans: Like the National Pension System (NPS) and Atal Pension Yojana (APY).
- Private retirement annuities from life insurance companies.
- Employer-linked pension accounts are part of the Employee Provident Fund (EPF) for salaried employees.
You can choose between a deferred annuity (which starts later) and an immediate annuity (where payouts begin soon after investing).
Key Benefits
- Once your pension starts, you receive a fixed monthly income or amount, which may help you to cover your daily expenses.
- Some pension schemes offer fixed, guaranteed returns, while others, like NPS, are partly linked to the stock market, so returns can vary.
- You can get tax deductions under Section 80C (under old tax regime) when you invest in specific pension plans. This helps lower your taxable income.
Limitations of Pension Schemes
- Here, returns are usually low, from 9% to 12% only.
- There is no flexibility in changing the plan or withdrawing the amount before completion of the plan (conditions apply).
- In most cases, the pension stops after you pass away. Some plans offer options where your spouse can continue getting money, but the monthly payout is lower in those cases.
How to Know If You Need a Pension Scheme?
Choose a pension scheme if:
- You need a steady income after retirement.
- You want to be financially independent in retirement and not rely on family or others.
- You prefer low-risk investments with predictable returns, rather than market-linked risks.
Pension schemes are best suited for those seeking regular income post retirement rather than focusing on wealth creation or providing financial protection for family members.
What is Term Insurance for Senior Citizens?
Term insurance policies are the plans that cover you for a fixed number of years. If you pass away during that period, your family will receive a lump sum. But if you survive the whole tenure, there may be no payout.
You can take a term insurance for senior citizens if you have any dependent family members, want to fulfil unpaid loans or have children who are not yet financially independent.
How it Works:
- You buy the policy for a fixed period (say, 10 or 15 years).
- You pay premiums annually or monthly.
- If you die within the policy term, the insurance company pays your nominee.
Key Advantages:
- Ensures your family doesn’t face any financial issues in your absence.
- Death benefit is tax-free under Indian tax laws under Section 10(10D).
- It covers your outstanding debt if you have any.
Drawbacks:
- As you grow older, you may have to pay higher premiums.
- Many insurance companies have fewer options for people over 65, especially when it comes to long-term coverage.
- You will not receive any maturity benefit, as term insurance only pays out if death occurs during the policy term. However, some insurance companies offer term insurance with a return of premium option.
Who Should Consider Term Insurance After 60?
Term insurance plans are ideal if:
- You still have family members depending on you financially.
- You want to ensure loans, mortgages, or medical expenses don’t burden your loved ones.
- You’re healthy enough to qualify and can afford the premiums. Term insurance for senior citizens offers a range of options to accommodate different health conditions and financial situations, making it a flexible choice for many.
It’s more of a protective shield for your family than a retirement plan for yourself.
Can You Go for Both?
Yes, you can go for both. Many senior citizens do. A pension scheme gives you a regular income, so you can manage your daily expenses without asking anyone for help. A term insurance plan, on the other hand, is there for your family. If something happens to you, they get a lump sum to help them stay financially stable.
Whether you need one or both depends on your situation. If you’ve saved enough and no one depends on you, you might not need term insurance. If your family is ready to support you, you might not need a pension plan. However, for many people, having both gives peace of mind. One takes care of your needs now. The other takes care of your family later. Leading insurance companies, like Axis Max Life Insurance, offer both kinds of plans, making it easier to find the right plan according to individual requirements.
Conclusion
Choosing between a pension scheme and term insurance isn’t just about money but about feeling financially secure. Analyse thoroughly before taking any plan. Consider all the possible aspects that can cover you and your family properly.
If managing daily expenses is what makes you tense, then go for a pension plan. If you’re more focused on making sure your family is financially secure after your demise, a term plan might be the right choice.
