Factors to Consider When Buying Pension Plan - Greyfont

Factors to Consider When Buying Pension Plan


A pension plan is a type of life insurance plan that provides you financial assistance in your retirement years. This plan helps you build a strong retirement corpus that takes care of all your needs in your old age. Once your income stops, you are eligible to receive regular pay-outs. To ensure that you pick the right pension plan, there are certain factors you need to consider. Read this article to understand all the factors that you need to consider when buying a pension plan in India.


1. Start early:

In your 20s or 30s, you might feel that it’s too early to plan for retirement. But in reality, it is not. Time flies and few years down the line you would be retiring. Hence, by beginning early you get to build a strong retirement corpus over a long period of time. Also, starting to invest in a pension plan at an early age attracts less premium, plus you also get to enjoy the benefit of compounding interests.


2. Inflation:

You might just have 30-35 years to enter your retirement age. Hence, when choosing a sum assured, keep in mind the inflation factor as after 30-35 years. The sum assured that you have opted for now won't be enough for you to live the kind of lifestyle you are living in now. Something that costs for Rs. 50 now may very well cost Rs. 150 in the next 10 years. It is therefore important that you factor in the concept of inflation.


3. Tenure of payment:

This is a very important factor you need to consider as few insurers only pay you the pension amount for a few number of years, while some make the pay-outs throughout your life. Hence, assess the pay-out term and see which option suits your requirement.


4. Type of annuity:

When buying pension plan, you have tochoose between an immediate annuity plan and a deferred annuity plan. Immediate annuity plan requires you to make lump sum payment and you start receiving the pension right away. This type of plan is useful when you don't have retirement fund and are looking to receive a large retirement bonus. Deferred annuity plan requires you to pay a sum of money at regular intervals and the pay-out begins when you retire. 


5. Vesting age:

Vesting age is the age at which you would start receiving the premium. Few pension plans have a vesting age of 40 years, while few have the age of 60. So it is up to you to decide the age at which you want to retire and get the pension amount. 


7. Diverse investments:

Under a pension plan, the premium paid is invested in diverse financial tools such as bonds, securities, certificates, etc. So always check the pension plan you are investing in further invests in what type of financial product.


It is important that you keep the above factors in mind when opting for a pension plan to ensure that you get the financial coverage when you need. Retirement is a wonderful phase in life and you must be able to enjoy it without any hiccups. Planning for your retirement is thus crucial. You have to think ahead and choose the right pension plan. This would help you build up a healthy corpus and you can continue to live life comfortably on your own terms for as long as you live.


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