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Your professional life may be full of stress due to multiple responsibilities and a hectic schedule. Many people who have thoroughly made the most of their professional lives look forward to a relaxing retirement. But an important component that goes missing in retirement is the monthly salary that you have been earning all your life. After retiring, while some of your expenses may come down, there will still be other financial responsibilities.

To take care of these financial obligations and to ensure your family’s financial security, you need to have a stable annuity plan or a pension plan. A flexible, robust and well-planned annuity plan can help you with a regular income or a lump sum payment so that you can face life after retirement with solid financial support.

What are Annuity Plans?

Annuity plans are retirement plans that enable you to receive a regular income during your retirement years after you invest in the plan over the years or in the form of a lump sum. The invested amount is then used to generate the returns on the annuity plan, which is paid out to the policyholder during their retirement years.

Annuity plans come with flexible investment options as well as payout options to ensure that you can accumulate your retirement funds at your convenience and receive the payouts for fulfilling your financial goals.

Why Do I Need a Pension Plan?

When you are about to retire, a new phase of your life awaits you. However, one of the major challenges during this phase is the lack of a stable income that you enjoyed during your professional years. But if you plan well in advance, you can choose a pension plan of your choice and invest the premiums over the years to accumulate enough funds until your retirement.

You can also choose how you would like to receive your payouts so that you can plan your expenses accordingly. Most annuity plans or pension plans come with the option of a monthly income so that you can plan your essential expenses and also set aside some money for your other major goals.

A pension plan is necessary to ensure the complete financial protection of your family and all their needs. And if your pension plan also has a life insurance cover, then they can be covered against financial emergencies even in your absence.

How Does Annuity Work?

To understand how an annuity works, let’s take a look at the example below:

Suresh, a 45-year-old professional, would like to plan his retirement such that he is able to receive a regular income in the absence of his salary. Therefore, he invests ₹20 Lakh in an annuity plan (2 Lakh for 10 years) of his choice. This annuity plan will gather returns on the investment for the next 15 years or until Suresh turns 60 years old and retires.

After this, the current annuity rates will be locked in, and after he retires, he will be able to receive anywhere between ₹2 Lakh to ₹2.5 Lakh per year as a regular income for the rest of his life.

These are some of the ways in which annuity plans work:

Life Annuity

Under a life annuity, you will be able to receive a payout of the benefits until your demise. In the event of your death, these annuity payouts will cease to be paid. However, while you receive the benefits, you can choose the payout mode – annually, quarterly or monthly.
Life Annuity with Return of Purchase Price

Till the time you are alive, you will be able to receive the annuity payouts as per the income frequency chosen by you. The purchase price will be returned to your nominee after your demise.
Joint Life Annuity with Return of Purchase Price

Till the time you are alive, you will be able to receive the annuity payouts as per the income frequency chosen by you . On death of the primary annuitant, the annuity will be paid out o the surviving annuitant. The purchase price will be returned to your nominee on the second annuitants’ death.
Inflation-indexed Annuity

As each year goes by, the annuity rate will increase by 2-5%. However, even if the annuity rate may not exactly match the inflation rate, it is adequate enough to ensure that your family’s financial commitments can be met and you and your loved ones can enjoy a stress-free post-retirement life. Hence, a lot of pensioners consider annuity plans for their retirement planning.
Annuity for a Guaranteed Period

Under this type of annuity, the annuity benefits will be paid out for a fixed period of 5, 10 or 15 years as chosen. The annuity reduced post the guaranteed period and continues till the annuitant’s demise.

What is a General Insurance Policy?

General insurance, unlike life insurance, does not offer a life cover. It is an indemnity contract and its working differs from that of a life insurance policy. Under general insurance, you can protect assets like your health, your home, your car or bike and the like, and the benefits are only paid out in case of damage to any of the assets.

To understand this better, let’s look at an example. A health insurance policy, while safeguarding your health, will only offer compensation for losses under specific conditions such as injuries and illnesses that lead to hospitalisation. Most policies also cover outpatient expenses where you can be reimbursed for consultation fees. However, if you are sick for a day and do not seek any medical help or do not get admitted to a hospital, you cannot claim the health insurance benefit since you need to provide the medical bills and receipts as proof.

What are the Types of General Insurance?

Motor insurance

Motor insurance, which can be car insurance, bike insurance or commercial vehicle insurance, offers protection to your vehicle against a number of damages, depending on the type of policy you choose. You can opt for a simple third-party cover that will only safeguard you against damages to other vehicles, persons or property by your insured vehicle.

Or, if you choose a comprehensive motor insurance plan, it will also cover damages to your own vehicle (known as own-damage cover), along with personal injuries to you as well as any third-party damages. Many insurance providers offer long-term motor insurance policies, which eliminate the hassle of renewing your motor insurance policy every year.
Health insurance

Health insurance policies are of different types and can be further divided into critical illness insurance plans, family health insurance plans, senior citizens' health insurance and so on. Depending on the policy of your choice and the coverage it offers, health insurance plans are meant to take care of the expenses arising from medical emergencies arising from accidents, injuries and illnesses that lead to hospitalisation, treatments or surgeries.

When purchasing a health insurance policy, you can choose a sum insured or coverage amount as per your needs and also select the number of family members to be covered under the plan. This ensures that in case of medical contingencies, you and your loved ones need not dip into your savings to pay hospital bills and other costs such as post-treatment care and medication.
Travel insurance

When you are travelling to another city, state or country, there may be a chance of suffering financial losses due to the cancellation of your flight, the trip cancellation due to an illness or also loss of your baggage, passport, valuables, etc. Other losses also include falling sick on the trip or meeting with an accident, both of which can lead to hospitalisation. In such cases, a comprehensive travel insurance plan can help you recover these losses, in full or to some extent, depending on the terms and conditions of the policy.

Like health insurance, you can choose the coverage of your travel insurance policy as per your needs, the duration of your tour or any potential risks involved. However, it is important that these losses should come under the purview of your insurance policy. For instance, if your travel insurance has a COVID-19 cover, it is important that you are able to produce proof of hospitalisation due to the infection in order to file the claim.
Home insurance

Home insurance or property insurance is a type of insurance cover that protects your home or private residence from damages due to natural causes and human causes. The natural causes include but are not limited to floods, earthquakes, cyclones and many other natural calamities which can cause direct harm to your home’s structure and form.

In the case of damages due to human causes, any visible harm caused to your property during a robbery or the loss of some assets during such an event can be covered under home insurance.
Marine insurance

Another type of general insurance policy is marine insurance. As the name clearly indicates, this type of insurance policy offers protection against losses and damages to ships and the goods and cargo they carry.

Many a time, the transportation may be rough due to bad weather conditions, causing extensive damage to the goods being transported as well as the ship itself. Since such huge ships are quite expensive and indispensable for transportation across waterways, marine insurance is quite important.
Commercial insurance

If you have a business that offers certain products or services to clients, you will need commercial insurance to protect your business from losses. Commercial insurance is quite a vast type of insurance in itself and comprises employer’s liability insurance, public liability insurance, professional indemnity insurance, etc. Depending on your needs and potential business risks, you can purchase any of these insurance policies.

Difference Between Life Insurance and General Insurance

Terms of contract

A very important point of difference between life insurance and general insurance is the policy term. Whole life insurance plans are long-term plans with a minimum tenure of 5 years to a maximum of 100 years, a general insurance policy has a tenure of one year. However, insurance providers now offer long-term motor insurance policies to ensure that customers do not have to worry about yearly renewals.
Premium payment

Life insurance policy premiums are paid on a monthly, quarterly, semi-annual or annual basis; whole general insurance policy premiums may not offer much flexibility in terms of premium payments. Premiums of general insurance plans are paid during the purchase or renewal of the policy and hence, only on an annual basis. But it is important to note that travel insurance plans only have a single premium payment at the time one has to take a trip.
Insurance Claim

When a life insurance claim is made, the sum assured is offered to the nominee of the policyholder in case of the latter’s demise or given to the policyholder as a maturity benefit. In case of critical illness or health riders attached to the life cover, one can file a claim in case the conditions covered under the rider come are diagnosed.

But in the case of general insurance plans, the benefits are not paid out unless the terms of the compensation are met. For instance, you cannot claim bike insurance unless your bike has been damaged as per the conditions specified in the policy document.
Policy Value

The policy value of a life insurance plan is based on the sum assured, which is determined by the needs of the policyholder and their capacity to pay timely premiums. The sum assured is either paid out as a death benefit or a maturity benefit, as per the situation.

However, in general insurance, the sum assured is determined by the asset that needs insurance and not the needs of the policyholder. For instance, when buying a bike insurance plan, the make and model, as well as the cubic capacity of your bike, will affect the coverage and hence, also the premiums.

Comparison Chart to Know the Difference Between Life Insurance And General Insurance

Factors	Life Insurance	General Insurance
Coverage	Offers a financial cover on the life/health of the insured person or policyholder.	Offers a financial cover for assets like your home, health, vehicle, etc.
Premium payment	The premiums can be paid monthly, quarterly, semi-annually and yearly.	The premium can be paid only while purchasing and renewing the policy.
Compensation	The sum assured is paid out in full as a death benefit or maturity benefit.	The compensation is paid out based on the extent of the damages.
Policy Value	The policy value is determined as per the needs of the insured.	The policy value is determined by the price or value of the asset.
Type of Contract	Life insurance is an investment for the future financial security of oneself and one’s family.	There is no investment or savings component in the general insurance; this is an indemnity contract.

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Frequently Asked Questions (FAQs)

Are there tax benefits^{^} on life insurance and general insurance policies?

Under general insurance, you can claim tax deductions only on health insurance premiums under Section 80D of the Income Tax Act. Under the same section, you can also claim deductions for health rider premiums added to your life insurance policies. Other types of general insurance policies are not eligible for any tax benefits.

In contrast, all life insurance policy premiums are eligible for tax deductions under Section 80C of the Income Tax Act, while the death benefits or maturity proceeds of some life insurance policies are tax exempt. For instance, term insurance death benefits are tax-exempt; however, there are no maturity benefits in pure term plans and hence, no tax benefits.
How to pay my premiums for life insurance policies?

If you purchase your life insurance policy online, you can pay the premiums online by logging in with your policy number and then make the payment through any of the digital payment options. If you have bought the policy offline, you can visit your insurance provider’s office branch and make your premium payment.
Do I pay my general insurance premiums online or offline?

Depending on how you have purchased your general insurance policy, you can choose to either pay your premiums online or offline.
Does ‘claim’ have the same meaning in life insurance and general insurance?

Yes, the process of filing a claim under life insurance and general insurance is the same. You can contact your insurance provider’s team on their official website, write to them or visit them when there is a need to file a claim. However, the situation under which the claim needs to be filed is not the same for life insurance and general insurance.
Is it possible to cancel or return a life insurance policy once you purchase it?

Yes, there is a feature called a free-look period when you purchase your life insurance policy that gives you a timeline of 30 days for online policies and a period of 15 days for offline policies. During this period, you can make certain changes to the details of your policy and in case you are not satisfied with the terms and conditions of the policy, you can return it to the insurance company and avail of a refund of the paid premium.
What happens if you stop paying your life insurance premiums?

If you do not pay your life insurance premiums on time or stop paying your life insurance premiums, you will be allowed a grace period of 30 days from the due date of the last unpaid premium. If you still do not pay the premium after the grace period is over, your life insurance policy will lapse and you will not be able to avail of its benefits until you renew the policy.
What type of life insurance plan should I choose?

The type of life insurance plan you choose will depend on you and your family’s requirements. Suppose, you are only looking for a life insurance plan that provides comprehensive life insurance protection to your family in the event of your death, then a pure term plan will be a good choice. However, in case you are making plans to fulfil your future financial goals, a savings policy such as an endowment plan or a money-back plan will work well.
Is it possible to create a retirement corpus with a life insurance policy?

Yes, there are retirement plans and pension plans under life insurance which enable you to pay premiums during the policy term before your retirement. At the end of the policy term, you can use the accumulated amount to purchase an annuity that will pay you a regular income during your retirement years.
Can only financial market experts opt for a Unit-Linked Insurance Plan?

No, Unit-Linked Insurance Plans can be purchased by any type of investor as per their risk appetite and their investment goals. However, a basic understanding of the market is needed to understand the working of a ULIP. It is also important to know that since ULIPs offer market-linked returns, there are no guaranteed returns, and hence, there are certain risks involved in purchasing a ULIP.
What is the difference between money-back plans and endowment plans?

Though money-back plans and endowment plans are both savings plans, there is one major difference between the two. Under an endowment plan, the entire maturity amount is paid out to the policyholder only on maturity and to their nominees in case of the insured’s demise. Money-back plans start paying out a percentage of the sum assured during the policy term itself at regular intervals and then pay out the remaining sum assured on maturity.
Will I get maturity benefits from my term insurance plan?

A pure term insurance plan does not offer maturity benefits, and the sum assured is only paid to the nominee of the policyholder in case of the latter’s death. However, if you choose a term plan with a return of the premiums, the total of all the premiums paid until maturity will be given to the policyholder as a maturity benefit and only if the policyholder outlives the policy term.

Disclaimer
- ^{^}Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfillment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere on this site. Please consult your own tax consultant to know the tax benefits available to you.
- Insurance cover is available under this product. For more details on risk factors, terms and conditions please read Sales Brochure carefully before concluding a sale.
- This product is underwritten by Tata AIA Life Insurance Company Ltd. This plan is not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.