"What will happen after retirement? How will we be able to make ends meet? Will I be able to live a stress-free retired life? Will I be able to maintain my standard of living? What will happen to my wife if I passed away", wondered a distraught Sharmaji reviewing his bank pass book.
Sharmaji is 45 years old and plans to retire at 60 after 35 years of service. But the passbook had a different story to tell.
Over the years he had been a caring son, a dutiful husband, and a loving father. As per the prevalent social customs and traditions, he had provided the best education to his daughters and got them married. He had taken care of his sick parents and stood strong besides his wife during her battle with cancer.
Life had been tough and Sharmaji braved it all with a smile, never losing his composure. He even ignored his needs; "Family First" was his moto.
But now as he stood close to his retirement, he knew he was tired. Life's challenges had worn him down and all he wanted was a peaceful retirement.
But, it seemed that his dream was nowhere close to being realised / achieved. He wondered if he could retire at 60 or for that matter whether he would ever be able to retire!
He decided to seek the help of his friend Vermaji, an Insurance Advisor. Vermaji suggested buying Kotak Premier Pension Plan—a participating plan with assured benefits on death and vesting.
Vermaji went on to explain the plan and its benefits.
Key Advantages:
- Guaranteed Additions: In the first 5 policy years, the policy will be eligible for the following assured additions called Guaranteed Additions. These Guaranteed Additions will accrue and vest at the end of the each financial year and will be available either on vesting or on death whichever is earlier, provided the policy is in force and all due premiums have been paid in full:
- For Regular & Limited Premium payment options: 5% p.a. of the Basic Sum Assured
- For Single Premium Payment option: 2% p.a. of the Basic Sum Assured
- Earn bonus from 6th policy year onwards
- Assured Benefit: This is the minimum guaranteed benefit available either on death or on vesting. This benefit will be equal to 105% of the total premiums (excluding taxes and rider premium, if any) paid till date of death or vesting.
- Vesting Benefit: Upon completion of complete tenure of the plan, the following benefits will be available:
- Basic Sum Assured PLUS
- Accrued Guaranteed Additions PLUS
- Accrued Reversionary Bonuses and Terminal Bonus, if any
- Death Benefit: In the unfortunate event of death of the Life Insured during the term of the plan, the nominee will receive the following:
- Assured Benefit PLUS
- Accrued Guaranteed Additions PLUS
- Accrued Reversionary Bonuses and Terminal Bonus, if any.
- The nominee can use any one of the following options to receive the Death Benefit pay out:
- Purchase an Immediate Annuity at the then prevailing rate from Kotak Life Insurance with the entire proceeds of the policy or with part of it; OR
- Withdrawal of the entire proceeds of the policy
- Tax Benefits: Tax benefits can be claimed under Section 80CCC of the Income Tax Act, 1961.
Some of the additional features are as follows:
| Additional Features |
Benefits |
| Convenient premium payment term and modes |
You can choose your premium paying term as per your convenience; the plan offers Regular premium pay, Limited pay of 10 and 12 years or Single pay option |
| Additional Protection (Optional) |
Increase the protection level by selecting from a wide range of Riders:
Kotak Accidental Death Benefit Rider (ADB): Lump sum benefit paid on accidental death.
Kotak Permanent Disability Benefit Rider (PDB): Instalments paid on admission of a claim on becoming disabled due to accident. (For more details on riders and exclusions please refer to the individual rider brochure before concluding the purchase) |
| Reduced Paid Up benefit |
For Regular & Limited Premium Pay policies, after the policy acquires Surrender Value, if the subsequent premiums are not paid within the grace period the policy will be converted into a Reduced Paid-Up policy by default. Along with Reduced Paid-up Basic Sum Assured all accrued reversionary bonuses/guaranteed additions that have already been attached to the policy will also be available at vesting. Single Premium policies will be considered as fully Paid-Up. |
| High Sum Assured Discount |
For Regular and Limited Premium Payment option: Premium discount of Rs 2 per 1,000 Basic Sum Assured will be available for Basic Sum Assured of Rs 5 lakhs and above.
For Single Premium Payment option: Premium discount of Rs 8 per 1,000 Basic Sum Assured will be available for Basic Sum Assured of Rs 5lakhs & above. |
(Source: Brochure of Kotak Premier Pension Plan)
(PersonalFN Research)
The eligibility conditions are as follows:
| Entry Age |
- Min: 30 years;
- Max:
- For Regular & Limited Pay: 55 years
- For Single Pay: 60 years
|
| Vesting age |
- Min: 45 years
- Min: 45 years
|
| Policy Term |
- Regular Pay: 10 - 30 years
- Limited Pay:
- 10 Pay: 15 - 30 years
- 12 Pay: 17 - 30 years
- Single Pay: 10 years & 15 years
|
| Premium Payment Term (PPT) |
- Regular Pay: Same as policy term
- Limited Pay: 10 and 12 years
|
| Premium Payment Mode |
Yearly, Half yearly, Quarterly, Monthly |
| Basic Sum Assured |
- Min: Rs 2 lakhs
- Max: Subject to underwriting
|
(Source: Kotak Premier Pension Calculator)
(PersonalFN Research)
To illustrate, for Sharmaji aged 45 years for a Basic Sum Assured of Rs 10 lakhs and with a policy term and premium payment term of 20 years would have to pay a yearly premium of:
| Cover |
Sum Assured |
Term |
Premium Payment Term |
Yearly Premium (Rs) |
| Base Cover |
10,00,000 |
20 |
20 |
55,550 |
(Source: Kotak Premier Pension Calculator)
(PersonalFN Research)
His Assured Benefits and Vesting Benefits would be as follows:
| Assured Benefits |
| Minimum Return on the Premiums Paid |
Not Applicable |
| Guaranteed Vesting Benefit (Rs) |
12,50,000 |
| Guaranteed Annuity (per annum) (Rs) |
1,27,875 |
(Source: Kotak Premier Pension Calculator)
(PersonalFN Research)
| General Details |
Guaranteed Benefits (Rs) |
Non-Guaranteed Benefits (Rs) |
Total Vesting Benefit |
| Year |
Age |
Annual Premium (Rs) |
Cumulative Annual Premium (Rs) |
Guaranteed Additions |
4% |
8% |
4% |
8% |
| 20 |
65 |
55,550 |
11,11,000 |
2,50,000 |
2,56,250 |
10,08,625 |
15,06,250 |
22,58,625 |
| Annuity payable (per annum) based on the total vesting benefit given above and the current annuity rates (Rs) |
1,54,089 |
2,31,057 |
| Annuity payable (per month) based on the total vesting benefit given above and the current annuity rates (Rs) (rounded off) |
12,841 |
19,255 |
(Source: Kotak Premier Pension Calculator)
(PersonalFN Research)
Sharmaji likes the idea of investing in a pension plan. He doesn't mind delaying his retirement by 5 years (at 65). "
It guarantees me a fixed sum of money" is his rationale. He believes that investing in a pension plan would guarantee him a peaceful and stress free retirement.
What do you think? Is
Sharmaji right in his approach? How have you planned for your retirement? Have you purchased Pension Plans or have you invested in Mutual Funds?
The Verdict:
We believe that planning for your retirement is very important, however it is important to put your hard earned money to productive use by investing in various productive investment avenues on a regular basis so as to meet your retirement needs.
A pension plan is not necessarily conclusive enough to cater to your retirement needs; you could do better with diversified equity mutual funds and other debt oriented funds with a portion in gold to hedge your portfolio over the long term.
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