Global demographic processes have essentially affected the way people lead a comfortable life after reaching retirement age. Currently, states cannot guarantee a pension that ensures a decent income for the elderly. So, life insurance and private pensions are a solution for a peaceful life. They have become significant components in preparing for safe and comfortable retirement, says an article produced by the National Bank of Moldova in partnership with the Independent Think Tank “Expert-Grup”, IPN reports.
Life insurance is based on multi-year contracts, requires a lasting commitment between the contracting parties and materializes in the annual or monthly payment of insurance premiums, for a period negotiated by the parties. Death is the most important risk covered by life insurance. However, depending on the type of insurance chosen, life insurance offers other insurance protection.
Life insurance can guarantee financial security, peace of mind, as well as an additional income after retirement, accumulated by investing the premiums paid to the insurance company. It also provides tax benefits when there is an appropriate legal framework, which postpones or even excludes the obligation to pay taxes on premiums paid on the basis of insurance policies.
According to the NBM, there are multiple types of life insurance and each person can choose according to their necessities so as to have their needs covered. The most common types of life insurance are: limited term or classical life insurance, which is granted for a predetermined period; mixed life insurance, which is different from the first two as it also insures the risk of survival; insurance for education or other large expenses during life.
The main feature of private pensions is the monthly contribution with a predetermined amount by the participants who opted to join a private pension fund, which accumulates for long periods. The total value of the contributions plus the investment income obtained from their investment constitutes the amount of money that belongs to the participants and that can be asked to be paid at the time of retirement.
There are multiple classifications of private pensions, such as the classical private pension and the occupational pension, which have the same basis, namely the long-term investment of participants’ contributions. The only difference lies in the contributors, in the case of occupational pensions the contributions being paid by the employer.
Private pensions guarantee a constant and predictable income stream, obtained when reaching retirement age, which makes the transition from an economically active life to a passive one easier, and the accumulated amounts constitute the property of the beneficiary. Even in case of premature death, before reaching retirement age, these accumulated amounts are transmitted to the legal successors. Employers use private occupational pensions as a method of keeping and attracting employees.
According to the NBM, there are a number of tax advantages, by postponing the taxing or even deductibility of contributions and investment income obtained, in case of payment of benefits in several installments for a long period. This reduces taxable income in the years during which contribution is paid and this can lead to significant tax savings and more money invested.
Experts say that life insurance mitigates the financial impact of an early death by ensuring the family’s financial security. Private pensions help manage the risk of exceeding savings by ensuring a solid income. To make the perfect choice, one should evaluate the current financial situation, retirement goals and possible future expenses.
