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his retirement age (known as vesting age in industry parlance); at this age, typically, he will be provided with one-third of the accumulated corpus as a lump sum payment. This lump sum payment (subject to a maximum of one-third of the corpus) is tax-free in the hands of the policy holder. The balance amount (accumulated corpus less lump sum payment) is converted into a monthly income, also known as annuity. In other words, the policy holder can choose to invest the balance sum with any life insurer to obtain a monthly income for the rest of his life. The period over which he will receive the monthly income is known as the annuity period; the monthly income is taxable as per the policy holder's tax slab.
Kumar pays an annual premium of Rs 20,000. At 6% rate of return his corpus will grow to Rs 1,384,404 after 30 years. If he invests the same in an annuity he will receive Rs 135,434 (@ 6% rate of return) every year till he survives. In a ULIP, the policy holder can choose the proportion of his funds to be invested in equity and debt instruments. If the policy holder expires during the policy tenure, then the nominee/s, subject to certain conditions, are given the option to receive the fund value as a lump sum or to purchase an annuity. An important feature of most pension plans available in the Indian market is the absence of an insurance benefit. For instance, Bajaj [ Images ] Allianz UnitGain Easy Pension Plus does not offer any life insurance cover. On the other hand, ICICI [ Get Quote ] Prudential LifeTime Super Pension offers the policy holder the option to opt for a life insurance cover. But it must be understood that the policy holder will have to bear the cost of insurance. The charges (i.e. premium for life cover) would be deducted from the pension plan premium paid by the individual and the same would impact his returns, as has been demonstrated in the illustration below. For an investor who is not insured or inadequately insured, going in for the insurance cover would make sense. In case of death during the term, the higher of sum assured or fund value shall be paid to the insured.