Tax Benefits in Retirement Insurance Plans | RenewBuy

Tax Benefits in Retirement Insurance Plans

The tax benefits available in a retirement insurance plan are very attractive. This is a significant reason why you should invest in a good retirement plan. There are many other reasons. Please take a look at this article to know all about the benefits of pension taxability and how you and your family can benefit from it.

Tax Benefits in Retirement Insurance Plans:

You get tax benefits in many ways when you invest in a retirement insurance plan. They are:

  1. Tax rebate under Section 80CCC: Premium paid towards any annuity plan qualifies for income tax rebates under Section 80 CCC of the Indian Income Tax Act up to INR 1.5 lakhs a year for the premium you pay.
  2. Tax rebate under Section 80D: Some riders, such as the critical illness rider, offer additional tax benefits under Section 80D. Since a health insurance component is attached here, you qualify for the tax benefits under Section 80D when you attach these riders to your retirement insurance policy.
  3. Tax-free death benefit: If you happen to die within the accumulation phase of the policy period, your nominees will receive a death benefit. This will be completely tax-free, as all life insurance proceeds, especially those received after the policyholder's demise, are tax-free in India. If you happen to die within the accumulation phase of the policy period, your nominees will receive a death benefit. This will be completely tax-free, as all life insurance proceeds, especially those received after the policyholder's demise, are tax-free in India.

It is, however, essential to note that the annuity you get from the pension plan after it vests is taxable and will be taxed as per the applicable tax slabs.

Reasons why you Need a Pension Plan?

While the benefits of the pension plan are convenient and a great reason you should invest in a retirement plan, you get some other benefits when you invest in such a policy. They are:

  • Life Cover: Some annuity plans have a life cover with the retirement plan. So, when you buy a pension plan, you also keep your loved ones financially secured. If anything happened to you while you save for your retirement, your nominees would get a sum assured. If you invest in a deferred annuity plan, the premium paid or the current fund value will also be distributed to your nominees.
  • Loan Collateral: Life is unpredictable, and you never know when a financial emergency may come up at any time. If you are ever faced with such a situation, you can easily take a loan against your retirement plan on quick and straightforward terms. You can then use the loan money to meet your financial emergency. Then, you can repay the loan in easy instalments.
  • Smart savings over some time: One of the best advantages you get here is that you can save over a long period in a relaxed manner. You can save in small instalments and build up a large retirement corpus. It is never too early to start saving for your twilight years, so start saving even if you are in your 20s or 30s presently.
  • Easy retirement planning: Planning for your retirement may seem complicated and confusing because you may not know where to start from and how to go about it. However, when you choose to invest in an actual product such as a retirement insurance plan, the job becomes a lot simpler for you, and you know precisely how to go about it. Choose a good retirement plan from the insurance providers and build up a healthy corpus.  An annuity is a payment that you receive for the rest of your life or for an agreed number of years and covers the risk of living too long. So, retirement planning becomes easy with annuity plans.
  • Financial independence: If you have always been financially independent, you surely would not want to depend on your kids for financial assistance after you retire. It would help if you always were financially independent to pay your bills and take care of yourself, no matter the situation. With the help of a retirement insurance plan, this becomes very easy and doable for you.

  • Freedom to live life on your terms: And finally, you get the freedom to live your life on your terms till the very last day of your life. This is a massive advantage as living under someone else is never favourable. Plan for your retirement and ensure you live with your head held up forever.

These are some of the most important reasons why you need to get a pension plan at the earliest, apart from pension taxability benefits.

Types of Pension Plans:

  1. Deferred Annuity Plan: The deferred annuity plan has a long investment period. You can make small contributions and invest in this plan for periods as long as twenty or thirty years. You can get many tax benefits over the years for the yearly contributions you make. After you retire, the fund is broken up into small instalments, and you start receiving a salary regularly.
  2. Immediate Annuity Plan: The immediate annuity fund is a pension plan where you invest a lump sum amount of money, and the pay-outs begin immediately. You can choose to do this when you retire if you haven't invested over the years and now are left with a large corpus. Invest the money and get regular pay-outs out of it.

Choose the type of retirement plan that suits you and helps you achieve your financial goals post your retirement.

To Wrap it up:

You indeed get many tax benefits when you choose to buy a pension plan. This apart, there are other benefits to enjoy as well. Make use of all the advantages mentioned above by buying a good retirement plan from a good life insurance policy. Compare the options before you get a plan to ensure you have the appropriate cover at a reasonable rate. Stay protected, and you will have financial independence till the last day of your life.

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