At a time when interest prices on fixed deposits are falling, obtaining an assured revenue for retirees for the rest of their life has come to be difficult. Purchasing annuity from life insurance coverage organizations is definitely 1 remedy they can appear at for a typical money flow just after retirement.
An annuity is a assured quantity paid for a subscriber’s lifetime. While insurers present different sorts of annuity solutions ranging from pension for life, pension to spouse on the death of the annuitant, there is no provision for surrendering the policy in case of any want for cash for any emergency. There are selections exactly where the corpus is returned to the legal heir of the investor only just after his death, but this lowers the successful returns.
Annuity plans are appropriate for threat-averse investors who do not want to park their retirement savings in equity-connected instruments. B Srinivas, head of solutions, ICICI Prudential Life Insurance Company, says annuity solutions by life insurance coverage organizations are perfect for taking care of retirement wants due to the fact they are not vulnerable to things like industry volatility and adjustments in interest prices. “Annuity products provide guaranteed income for the whole life of the policyholder thereby enabling them to be financially independent in their golden years,” he says.
Sanjay Tiwari, director, tactic, Exide Life Insurance, says it is significant to make a decision on the savings scheme to accumulate the wealth which can be turned into an annuity at a later stage. “Life insurance is an option that offers dual security, for mortality as well as longevity. During the accumulation phase, in case of the unfortunate death of the investor, the family is paid out a lump sum which will be 10 times the annual premium. This tax-free amount can also be converted into an annuity as per the customer’s choice. In case the investor lives through the accumulation phase, he can enjoy the benefits of lifetime income by converting the maturity amount into an annuity,” he says.
Types of annuity plans
Life insurers present two sorts of annuity plans—deferred and quick. In the quick annuity program, the investor pays a lumpsum quantity to get pension payout at typical intervals like month-to-month, quarterly, half-yearly. This is appropriate for these who have received a lumpsum like gratuity or from Employees’ Provident Fund just after retirement or have accumulated a corpus. In deferred annuity plans, an investor accumulates cash with the insurance coverage business by investing in a pension program and then gets pension or typical payouts just after retirement. Deferred annuity also delivers the client the solution to withdraw 1-third of the corpus tax absolutely free as a lump sum and convert the remaining two-third into an annuity.
Srinivas says a particular person in his late 40s or early 50s, the deferred annuity program is the recommended solution. “On the other hand, for a person who is close to retirement, an immediate annuity would be best,” he says.
Similarly, Tiwari recommends that 1 ought to start out investing for retirement as early as in the 20s. “Starting early doesn’t put much strain on liquidity and eventually results in a huge corpus which can be converted into annuity. Hence, individuals at their early stages of life could consider going for deferred annuity options instead of immediate annuity. However, if someone is not able to regularly save at the early ages, immediate annuity at the time of retirement would be better as it allows one to purchase the plan and start receiving a regular income immediately,” he says.
Lower prices a concern
As quick-term interest prices are greater than extended-term prices, it becomes difficult for insurers to spend greater prices for annuities as they are extended-term payments. As extended-term bonds are not usually offered in the industry, insurers have to take the threat of reinvesting at low prices. As a outcome, annuity pricing becomes greater and quite a few investors obtain the existing annuity prices unattractive.
Experts recommend that insurers as effectively as annuitants can get superior advantages if there is some quantity of threat-sharing among the insurer and the annuitant. Investors need to appear at the monetary stability of the insurance coverage business and acquire annuity solutions from a trustworthy brand.