​​What is NPS and how does it work alongside a life cover?

A significant segment of an individual’s financial planning, the National Pension System (NPS) is a long-term retirement savings scheme introduced by the Indian government. It is aimed at giving old-age pensions with a market-related return.

What is NPS? This is usually the most wondered question by many. While you may have gotten a brief about what it is, continue reading to learn more about this financial product. NPS stands for National Pension Scheme, which is an important financial product that guarantees a stream of income after one retires. Additionally, linking it with a life insurance policy can give you a solid financial net. Through this way, one will not only ensure their financial security during retirement but also that of their dependents.

How NPS works alongside a life cover –

·       Financial security

NPS (National Pension System) is a monthly income scheme after retirement which supports maintaining the standard of living. This monthly pension helps people to secure their financial strength after retirement. Likewise, a life cover takes care of the financial needs of the family in the event of the policyholder passing on. Life insurance endows an amount of money which is huge to the family to help them maintain their lifestyle and to live financially independent.

·       Dual benefits

The union of both NPS and life cover leads to a two-fold effect. Through NPS the policyholder is guaranteed a stable pension income during the duration of his/her retirement years, and this offers some financial security during the retirement period. Nevertheless, it is worth noting that life cover provides the family with financial protection in case of the death of the policyholder and serves as a safety net for their dependents.

·       Tax benefits

NPS contributions and life insurance premiums are eligible for tax deductions under different sections of the Income Tax Act. Such exemptions not only reduce taxable income but also motivate people to save for their retirement and offer financial security for the next generation.

·       Diversification of investment portfolio

The NPS investments are diversified in different kinds of asset classes such as stocks, government bonds, and corporate bonds. Such diversification is instrumental in reducing the overall risk of market turbulence. Diversifying the investment portfolio and providing risk coverage by life insurance take the financial risk of the policyholder, as well as their family, to a lower level.

·       Holistic coverage

The joint provision of NPS and life insurance insures against all financial risks. The NPS makes available a regular pension income after one has retired while the life cover pays the beneficiaries a lump sum in case of the policyholder’s demise. The comprehensive nature of this cover ensures that the policyholder and their family are secure financially.

·       Cost-effectiveness

NPS levies a low fund management fee, which makes it a cheap way to save for retirement. Together with life insurance, this gives consumers maximum financial security at a low cost, which makes it an attractive alternative for those seeking retirement planning and life insurance coverage at the same time.  

·       Flexibility

NPS permit partial withdrawals after three years only under certain conditions. This may especially be important for those going through financial emergencies as it allows people to take out a portion of their retirement assets without paying big penalties.

·       Risk management

NPS features exposure to the stock market, which can produce higher profits. On the contrary, it implies the risks associated with market volatility. The death cover, therefore, pays out a fixed sum assured in the event of the insured’s death, and it is meant to be a risk reduction tool as well as financial protection for the family.

·       Voluntary

NPS is a non-compulsory plan that provides you with the flexibility of selecting the amount of your contribution depending on your financial goal and investment capacity. Such flexibility means that each person can personalize their pension saving in order to meet their individual goals and dreams.

·       Inflation protection

Inflation is a major concern. Returns from NPS investments, and life cover with sum assured can tackle inflation by providing for any price rise. The NPS and life insurance collectively provide the policyholder and the family with an uninterrupted income in the form of monthly payments and a lump amount. The policyholder in this case is consequently able to secure himself against the inflationary pressures.

·       Legacy creation

The death benefits from life insurance may be extremely helpful in creating a financial legacy for the dependents of the policyholder. This financial support can enable the family to accomplish their long-term financial goals and aspirations and consequently make a remarkable difference after the policyholder’s death.

·       Corpus creation

Consistent savings into NPS can develop a huge retirement corpus over the career span. Such accumulation leads to financial independence and security for future old age, and people have no financial matters to worry about because they are enjoying the years of their retirement.

·       Retirement planning

It is very obvious that NPS and life cover are the key components of the retirement planning framework. It not only tackles the retirement income issue but also ensures that a family is left with a wealth legacy in case of the death of the policyholder, thus covering the full retirement cycle.

·       Financial discipline

Regular NPS contributions and life insurance premium payments will form the habit of saving and help in long-term financial planning. This systematic approach is a strong tool for people to adopt positive financial habits and always keep in mind their retirement goals.

·       Assurance of pension

NPS gives a regular pension post-retirement. This is an assurance which gives people a sense of security and peace of mind, knowing that they will have a consistent income stream in retirement and hence financial stability throughout their golden years.

In a nutshell, this type of product combination contains dual functions which are: addressing your post-retirement needs and life’s uncertainties. This combination creates a strong base for future financial security, allowing you to retire peacefully and provide your family with the necessary financial stability. It is a vital step in the direction of financial independence and protection of your family’s future. Therefore, a prudent financial plan that comprises both the NPS and the life insurance can actually make you financially healthier. As a conclusion, you should always consider investing in both for the greatest return on your investment. 

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