With rising life expectancy and falling interest rates, the regular income needs in the post-retirement life face grave danger. What one needs is both regular and fixed income to support household expenses after retirement. While all other post-retirement investments such as Senior Citizens Savings Scheme (SCSS), bank fixed deposits etc provide a fixed and regular income, the re-investment risk exists in them if interest rates fall in the future. What one needs is an immediate annuity plan to secure one’s lifetime regular income. An Immediate Annuity plan can be one of the investments for post-retirement needs.
IDBI Federal Life Insurance has launched a Guaranteed Lifetime Income Plan to address this concern. It is a single premium, non-participating, non-linked general annuity plan that would offer guaranteed regular income for life to help manage expenses during the retirement phase of life. The money will not be invested in equities and according to the insurer, the funds will be locked-in at guaranteed rates and such long-term guarantees are only available under annuity plans.
This guaranteed income, akin to drawing a salary, could be drawn with pre-determined periodicity – monthly, quarterly, half-yearly, or on an annual basis.
The Guaranteed Lifetime Income Plan offers three options –
1. Immediate Life Annuity,
2. Immediate Life Annuity with Return of Purchase price, and
3. Deferred Life Annuity with Return of Purchase price
Out of the 3 options, the first who are aimed at retirees while the third option ( deferred life annuity) is aimed at who is about 5-6 years away from retirement.
Guaranteed lifetime pension
For the two immediate annuity options, the pay-out would start from the first-year itself while for the deferred annuity with return of purchase price option, the annuity pay-out would commence from the 6th policy year. Opting to defer the payout for five years allows the policyholder to lock-in a higher rate at the inception itself which remains constant until the end of his or her lifetime.
Before you know the benefits, let us see how the immediate plan works. The amount that you invest is called Purchase Price, while the annuity is similar to a pension. In all such plans, the pension is paid till one survives while only a few options will return the capital invested to legal heirs when the investor dies. Therefore, choosing the right option should be determined carefully.
Benefits of Pension Plan
The Survival Benefit for the first two options of Immediate Life Annuity and Immediate Life Annuity with Return of Purchase Price is the Guaranteed Annuity Payout commencing from the first policy year, determined as per the frequency chosen at inception, and payable in arrears throughout the lifetime of the annuitant.
Further, under the option ‘Immediate Life Annuity with Return of Purchase Price’, the purchase price is returned to the nominee on the annuitant’s death.
Under the Deferred Life Annuity with Return of Purchase price option, on survival of annuitant till the end of the deferment period, i.e. 5 years, Annuity Payout, determined at inception, will commence from the sixth policy year, and would be paid in arrears as per frequency chosen at inception throughout the lifetime of the annuitant. On the death of the annuitant, death benefit as defined under the plan is paid to the nominee which would be a minimum of 110 per cent of the purchase price.