Should you opt for Guaranteed Annual Payouts in a life insurance policy?

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Updated: August 21, 2019 6:16:43 PM

After the death of the policyholder, no premium will have to be paid, and as agreed upon while buying the policy, the guaranteed annual payouts will be provided at the specific points in the policy term.

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Maintaining financial stability nowadays has become quite difficult. To provide financial stability to people, insurance companies keep innovating their existing products and also come up with different variants. For instance, guaranteed income plans, especially for risk-averse investors, offer life insurance along with maturity benefits and regular guaranteed payouts. These plans provide regular income, at a pre-defined percentage of sum assured which the policyholder needs to select at the time of buying the policy. Policyholders can choose to receive the income either yearly, half-yearly, quarterly or monthly.

Earlier this year, IDBI Federal Life Insurance launched its Young Star Advantage Plan, a traditional life insurance plan, designed to help policyholder secure their child’s future. This plan ensures that the future financial needs of the child are fulfilled, in case anything unfortunate happens to the parents or the bread-earner of the family. To help with the essential financial needs in the child’s life, the plan offers guaranteed annual payouts. Wherein the plan will pay a lump-sum amount to the nominee on the death of the policyholder. These guaranteed payouts will be at specific points of the policy term.

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The guaranteed additions accrue over a period of time and are paid at the time of maturity. The maturity benefits are paid based on the duration chosen by the policyholder. The death benefit is provided to the nominee of the policy on the death of the policyholder. Additionally, after the death of the policyholder, no premium will have to be paid, and as agreed upon while buying the policy, the guaranteed annual payouts will be provided at the specific points in the policy term.

Need for Guaranteed Payouts

In the case of guaranteed annual payouts, the return benefits are payable at the end of every year. At the time of maturity, along with terminal bonus, the policyholder is provided with a reversionary bonus. Depending on the term that the policyholder has chosen for the policy at the time of buying the policy, the payout benefits are payable at the end of every year, which is generally in the last 3 or 5 years of the policy.

The policy holder’s family will be provided with the death benefit to fulfill their future financial needs in the case of the unfortunate death of the policyholder. As the death benefit, during the premium paying term, the nominee is paid the basic sum assured along with bonuses if any. For as long as mentioned in the policy the payouts are carried. However, the nominee will receive the sum assured and other benefits along with the lump sum of payout left in the insured’s account, in case of death after the premium paying period. Also, no future premiums need to be paid by the policyholder’s family, while the policy still continues with all the planned benefits. Guaranteed additions are paid at the time of maturity, that is accrued to the policy, which the nominee gets along with eligible bonuses on the scheduled dates.

Note that generally, long-term guaranteed products offer conservative returns. Hence, experts suggest one should keep in mind and factor in inflation with the value of one’s investment, before opting for such a plan, so as not to bring home a lower return. Along with income tax deduction under Section 80(C) available every year, tax exemption under Section 10(10D) is available on the maturity proceeds.

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