Should I choose an insurance pension plan over mutual funds or fixed deposits? | Mint

I am 65 years old. I retired from a private job and live with my wife in Delhi. My primary source of income is earnings from the stock market and fixed deposits. Can a pension plan help me optimize my tax-adjusted returns compared to a mutual fund or fixed deposit?

-Name withheld on request

Pension plans can be classified into deferred annuity plans and immediate annuity plans. In a deferred annuity plan, you pay premiums for the next few years and get an annuity payout after the premium payment period is over. In an immediate annuity plan, you pay a lump sum premium upfront and start getting a pension immediately.

Since you are already retired, you should evaluate an immediate annuity plan. Generally, the returns embedded in the annuity rates offered are in line with fixed deposit returns. However, do note that the entire annuity amount received is taxable as regular income. This is unlike fixed deposits, where only the interest component is taxed.

In the case of a unit-linked insurance plan (ULIP), the return profile could be like a mutual fund. However, you would get the advantage of a tax-free return if the annual premium were up to ₹2.5 lakh, the sum assured 10X the annual premium, and the minimum lock-in period had been met. For policies with a premium of above ₹2.5 lakh, taxation would be like equity-oriented mutual funds.

How does the budget 2025 announcement affect my insurance investments and expenses, specifically with regard to the 80C and 80D deductions? I am currently in the old regime and have bought a few insurance plans to avail of these deductions. Can I avail of the tax rebate on income up to ₹12 lakh and claim these deductions, too?

-Name withheld on request

The Union Budget 2025-26 has not changed the 80C and 80D limits. They remain the same as earlier. These deductions continue to be available only under the old tax regime.

The tax rebate for income up to ₹12 lakh has been announced under the new tax regime. In the new tax regime, you cannot avail deductions for insurance under section 80C or 80D. The new tax regime is a simplified tax regime and does not allow these deductions. You should evaluate your overall tax liability under both regimes and choose the one with lower tax incidence.

However, you should consider insurance plans independent of the taxation benefits. The primary objective of insurance is to provide social security in case of an adverse situation. For an uninsured person, the insured events can make a substantial dent in the family’s investment corpus.

Abhishek Bondia is a principal officer and managing director at SecureNow Insurance Broker Pvt. Ltd.