Annuity plans: Investors should look for plans that allow them to redeem a part of their corpus in the event of an emergency.
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For retirement planning, an annuity plan from a life insurance company can help provide a regular income. Individuals must look at the coverage, safety, and liquidity before buying an annuity plan.
An annuity plan’s returns are typically low because payouts are spread out over time. Investors should look for plans that allow them to redeem a part of their corpus in the event of an emergency.
Immediate or deferred annuity
Selecting an immediate or deferred annuity will depend on your age and financial needs. If you already have a sizable corpus saved and needs a guaranteed income right away, then an immediate annuity is the suitable option. It starts within a year of investment and the frequency of annuity payment will be yearly, half-yearly or monthly.
In a deferred annuity plan, the annuity payouts are usually deferred by 5-15 years after you have made the investment. This type of plan pays out the annuity at the time when you require it, usually post-retirement, but investing now allows you to lock your money in at the current interest rates. “If you have funds to invest and you do not need the annuity payouts immediately, then it is better to defer the annuity as you will lock it in at a higher rate and you will end up getting a better annuity for the rest of your life,” says Karthik Raman, head, Products, Ageas Federal Life Insurance.
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Similarly, Jataveda Bhattacharya, head, Product Design, Aegon Life Insurance, says if an individual is planning for a future need which is still a few years away, then he can buy a deferred annuity. “He can choose the number of years after which he will need the income, and lock in the annuity rate right now. Thus, he can secure a guaranteed income for the future,” he says.
Remember, you will lose the right to access the principal after signing up for an annuity product. So, you need to ensure adequate liquidity for any emergency. Shilpa Arora, co-founder and COO, Insurance Samadhan, says an individual must go for an annual annuity which will give the best return. “An individual must opt for an annuity with return of purchase price,” she says.
Variable annuity
Variable annuities are a type of annuity where the policyholder can invest in a range of investment options that are correlated with the stock market. This can be a good option for those who are willing to take on a certain amount of risk in order to achieve longer-term gains. Such a plan is comparable to the floating rate of interest and investing in such a product depends on your risk appetite.
Casparus Kromhout, MD & CEO, Shriram Life Insurance, says variable annuities enable investors to customise their investment portfolio based on their unique needs and risk tolerance. However, it is important to note that variable annuities can be more expensive than other investment products like mutual funds or index funds due to higher fees and expenses. “It is crucial to consider your investment goals, risk tolerance, and overall financial situation before investing in a variable annuity,” he says.
Similarly, Raman of Ageas Federal Life Insurance says if an individual is not just dependent on an annuity plan and has other avenues for retirement income, then he could consider investing in such a plan.
“However, keep in mind that an annuity plan would be providing you income during your retirement years. Hence, it is advisable to invest in a variable annuity plan if it is likely to be supplementary income and not your primary source,” he says.
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In variable insurance, there is an accumulation period and a payout phase. So, during the accumulation period, an individual can choose to invest in high-risk products based on their risk tolerance. However, depending on market movement, the corpus may fluctuate over time.
“If someone wishes to beat inflation or receive lifetime payments, they can consider variable annuity plans, ” says Rakesh Goyal, director, Probus Insurance Broker.
Whole-life insurance plans
Whole-life plans are a mix of savings and protection and some individuals purchase these policies to supplement their retirement funds. Apart from a life cover till the age of 99 years, these plans pay a lump sum at the end of thepremium payment term which can help with medium-term goals. Individuals pay a premium for a fixed number of years and are assured of an income for life. However, the payout from this plan will be lower as compared to an annuity plan.
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Goyal of Probus Insurance Broker says whole-life plans are best used for estate planning. “It is an excellent instrument for putting money aside for future generations. However, whole-life plans for retirement funds can be considered because they provide payouts on maturity, along with bonuses, if any,” he says.
Ashish Lath, business head, InsuranceDekho, an online insurance aggregator, says a whole-life policy comes with pros and cons. “The annuity ensures that an individual will not run out of money in retirement, no matter how long he lives. However, the fixed payments from a whole-life annuity plan may not keep up with inflation, reducing an individual’s purchasing power over time,” says Lath.
FOR YOUR GOLDEN YEARS
* Choose an annuity plan based on coverage, safety and liquidity
* Immediate annuity plan starts within a year of investment
* Buying a deferred plan allows you to lock in your money at the current interest rates
* Go for variable annuity plan if it is likely to be a supplementary income
