Want Guaranteed Returns on Life Insurance? Annuity is Your Go-To Option

Jun 28, 2018 | 5 months ago | Read Time: 3 minutes | By iKnowledge Team

Life is so unpredictable and at the time of crisis, your preparation is just a matter of your good luck. Sometimes, the impact of unwelcome events is not just limited to you as it can also make your family members compromise. Therefore, it is important that you spend and invest your money wisely. Factors like investment planning plays an important role in keeping you financially secure in the future.

You can take the help of financial instruments like life insurance plan as a first step to ensure that the financial health of your loved ones is taken care of. However, if you are worried about outliving your income, you can make a smart investment move by choosing annuity in your life insurance.

What is Annuity?

An annuity is a long-term contract that will provide income after you retire. With an annuity plan, you can accumulate a corpus for your retirement years. The premiums you pay now will be converted into periodic payments after you retire. There is flexibility in annuities as well; you can choose to invest a lump sum or can invest over a period. Following the same, you can choose to start receiving payments immediately or later. Depending on your financial needs, you can choose the annuity offer that works best for your needs. Annuities do come with certain restrictions such as early withdrawal penalties.

What are the benefits of an annuity in life insurance?

  1. Tax exemption: The amount you invest into the annuity grows tax free until your earnings begin. This allows your investment to grow without any tax implication and it naturally enjoys a tax deferred status.
  2. Secured payout: Companies like Aegon life allow individuals to choose different annuity payout methods like Life Annuity and Joint Life Annuity to offer secured payouts constantly. Even if you manage to drain out all the retirement savings, you will be able to receive regular payouts from the insurance plan.
  3. Guaranteed rate of return: In case of an annuity plan, the rate of return will be fixed at the time of inception of the plan. This means you will be able to determine the amount you will receive each month after you retire. Based on the rate of return, you can choose your tenure and the assured sum.

What are the four types of annuity plans in India?

  1. Immediate annuity: In this product, the investment starts giving you a pension immediately without waiting for any period.
  2. Deferred annuity: In this product, your fund keeps growing for a particular period. You can choose when to start the pension from.
  3. Fixed annuity: In this product, the amount of pension you will receive is fixed for the entire plan and there is no change to the amount. You need to keep in mind that inflation will keep reducing the value of the annuity over a period.
  4. Variable annuity: This annuity option allows you to keep your investment in a variety of asset classes that range from most conservative to most aggressive funds. You can also choose balanced funds for the same. However, there is a minimum guaranteed annuity in this option.

To begin with, you must analyze your current lifestyle and monthly expenses for an effective investment planning. You must consider inflation and the rate of interest which will have an impact on the amount you invest today. If you are choosing an annuity product, keep in mind that the amount invested today will have lower value five years from now.

How does annuity plans work?

In single premium annuity policies, a certain lump sum is paid upfront to the insurer. Based on the financial requirement, you can choose the frequency of the payout you wish to receive after you retire.

This amount will be paid throughout your lifetime and will guarantee financial security. There are some annuity plans, which are unit-linked and offer market based returns to the policyholders. You can choose from several options like lifetime annuity, lifetime annuity with an annual increase and lifetime annuity with capital refund.

Such products come with a guaranteed rate of return throughout the life of the annuitant and the rate is specified at the time of purchase of the plan. It will also vary depending on the annuity option you choose. Life insurance plan can be customized according to your requirements and you can choose a rider or an option to make the most of the plan.

In the end

Before opting for an annuity plan, you need to consider your current financial condition and consider the finance requirement after you retire. Your regular flow of income will end from the day you retire, this means you will have to look for a rate of return that will be sufficient to manage your monthly expenses and will allow you to provide for unforeseen expenses in the long term. Choosing an annuity plan is an ideal option for those who are working to secure their life post retirement. Go through the variety of annuity offers available for you and choose the one that best meets your needs.

Advt. no.: IA/Jun 2018/4105


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