The correct answer is: Both A & B
Pensions are said to represent the flip side of life insurance because they both provide financial protection against different types of risks. Life insurance provides protection against the risk of premature death, while pensions provide protection against the risk of living too long.
Life insurance works by providing a lump sum payment to the beneficiaries of the policy in the event of the insured person’s death. This can help to cover the costs of funeral expenses, outstanding debts, and lost income.
Pensions, on the other hand, provide a regular income stream to retirees. This can help to cover the costs of living, such as housing, food, and healthcare.
Both life insurance and pensions are important financial tools that can help to protect individuals and families from financial hardship.
Here is a brief explanation of each option:
- Option A: Life insurance provides protection against premature death whereas pension covers the contingency of living too long.
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder).
A pension is a fund into which contributions are made by an employer and/or employee, and from which a regular income is paid to the employee, typically after retirement.
- Option B: In life insurance premium payments result in creation of sum assured. In case of pensions, the corpus gets liquidated by regular income payments.
In life insurance, the premium payments are used to create a sum assured, which is the amount of money that will be paid out to the beneficiary in the event of the insured person’s death.
In a pension, the contributions are used to create a corpus, which is the fund from which the regular income payments will be made.
- Option C: Both A & B
This option is the correct answer because it encompasses both of the above options. Pensions are said to represent the flip side of life insurance because they both provide financial protection against different types of risks. Life insurance provides protection against the risk of premature death, while pensions provide protection against the risk of living too long.
- Option D: None of the above
This option is incorrect because it does not accurately reflect the relationship between life insurance and pensions.