Guaranteed Income Plans: A pillar of support in volatile markets

Guaranteed income plans are life insurance plans that offer a specific amount as regular income to policyholders for a pre-decided time period.

Depending on the terms and conditions of your guaranteed income plan, you can make use of the regular payouts as your primary or additional source of income.

Investing in markets carries its own set of risks. It comes with a certain degree of volatility that may impact the returns you expect from your investments. Market volatility can be triggered on account of various reasons such as localized government policies, public sentiment, national and international events and the global economy at large. These factors are all unpredictable, and consequently, the returns you can expect from the markets may also vary.

If you are a risk-averse investor, market volatility can create anxiety and cause you to rethink your investment decisions. But with a little bit of foresight and planning, you can reduce the risk exposure in your portfolio and protect your money during volatile market phases. Safer investment options like guaranteed income plans can be particularly helpful here.

How can guaranteed income plans protect you in volatile market situations?

Having exposure to equity is essential for fulfilling long-term goals. However, depending on age and related factors, one needs to diversify their portfolio to reduce volatility. Guaranteed return plans prove to be an excellent option if one has already invested in equity markets through various other instruments.

There are many benefits one may enjoy by diversifying with guaranteed income plans, especially for those who are inclined to invest in less-risk and safer investments.

They offer assured returns

Guaranteed income plans are life insurance plans that offer a specific amount as regular income to policyholders for a pre-decided time period. This is in addition to the plan offering life cover. Some plans also offer return of premium features that are designed to give policyholders all the premiums paid till the maturity of the policy. The amount of income payable under these plans is calculated as a percentage of the sum assured or the annualized premium. The fact that these returns are guaranteed can help policyholders be assured of some income in the future on a regular basis like monthly, or quarterly.

They can supplement or replace your income as needed

The regular guaranteed income paid out under these plans can also be particularly useful if you are looking for a reliable stream of income to either supplement your primary income during your working years, or to replace your primary income once you retire. The income payouts start after a specified term, which can be any of the following –

  • Immediately from the beginning of the policy
  • After the end of the premium payment term in case of a limited premium plan
  • At maturity, for a specified tenure

So, depending on the terms and conditions of your guaranteed income plan, you can make use of the regular payouts as your primary or additional source of income.

They make financial planning easier

Market volatility makes it hard to predict the returns you will earn on your investments. By contrast, guaranteed income plans provide a fixed rate of return for a specified period. This makes the terms and conditions more concrete and quantifiable, thereby leading to easier financial planning. By knowing the exact amount of income you will receive over a predetermined tenure, you can plan for various life goals with a greater degree of certainty.

Summing up

Aside from their assured benefits, guaranteed income plans also offer better tax benefits than several other investment products. The premiums you pay are deductible up to Rs 1.5 lakh under Section 80C, and the payouts received are tax-free too. For risk-averse investors, these benefits coupled with the certainty of returns make guaranteed income plans the ideal pillar of support amidst a volatile market.

(By Bharat Kalsi, Chief Financial Officer, Bajaj Allianz Life)

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