In which ways a pension plan is different from a normal life insurance plan?
Normal insurance plans are meant to cover the risk of life, while pension plans are predominantly investment plans. In case of life insurance plans, the individual receives the sum insured on the maturity of the policy, or the nominee receives the sum insured on the death of the policyholder. Pension plans, on the other hand, provide a regular source of income by way of annuity on its maturity.
Pension plans also have the option of withdrawing up to one-third of the commuted value at the time of vesting. In case of an eventuality under life insurance plans, the nominees receive the sum assured plus the bonuses/additions, if any. Not all pension plans offer a life cover. In case of a pension plan, the nominee has the option of receiving the entire amount on maturity in cash and buying an annuity with the same. Premium paid up to Rs 1 lakh per annum is eligible for deduction under Section 80C in case of insurance plans. However, premium payments towards pension plans are eligible for deduction under Section 80CCC up to a maximum of Rs 10,000 only. The maturity amount in case of conventional insurance plans is treated as tax free in the hands of the individual. However, it is slightly different in case of pension plans. Up to one-third of the maturity amount, which can be withdrawn, is treated as tax free in the hands of the individual. The pension, from the remaining two-thirds amount, is subject to tax.
Pension plans also have the option of withdrawing up to one-third of the commuted value at the time of vesting. In case of an eventuality under life insurance plans, the nominees receive the sum assured plus the bonuses/additions, if any. Not all pension plans offer a life cover. In case of a pension plan, the nominee has the option of receiving the entire amount on maturity in cash and buying an annuity with the same. Premium paid up to Rs 1 lakh per annum is eligible for deduction under Section 80C in case of insurance plans. However, premium payments towards pension plans are eligible for deduction under Section 80CCC up to a maximum of Rs 10,000 only. The maturity amount in case of conventional insurance plans is treated as tax free in the hands of the individual. However, it is slightly different in case of pension plans. Up to one-third of the maturity amount, which can be withdrawn, is treated as tax free in the hands of the individual. The pension, from the remaining two-thirds amount, is subject to tax.
