Ch. 3: What Are The Benefits of General and Single Premium Annuity Plans

We learned about General and Single-Premium Annuity Plans in our previous articles. Under a General Annuity Plan, you’re required to make a series of payments, whereas, under a Single-Premium Annuity Plan, you need to pay a lump sum amount. Then, based on the options you select, the insurer will provide a steady stream of income to you after you retire.

Now, besides a regular income, both General and Single-Premium Annuity Plans provide several other benefits. We learn about these benefits - in this article.

Let’s dive right in!

Manage post-retirement expenses

As discussed above, Annuity Plans provide a regular income after you retire. This income that you receive can be used to manage your post-retirement expenses. So, you can enter into the new phase of your life without having to worry about having a steady source of income post-retirement.

Annuity Plans provide a sense of financial security as the payouts under these plans are guaranteed.

Basically, when you buy an Annuity Plan, an interest rate or annuity rate is locked in at the time of purchase. The insurer will pay the annuity amount to you at the same rate of interest. Since the rate at which you’ll receive the annuity is fixed well in advance, you can be certain that you’ll surely receive the annuity - and, you’ll receive the same annuity throughout the payout period chosen by you.

Now, at the time you want to start receiving the annuity, the interest rate may not remain the same - it may increase or decrease. However, irrespective of this, you’ll receive the annuity amount at the rate specified at the time of purchase.

Suppose the annuity rate when you buy the Annuity Plan is 6% - and, you plan to retire after 15 years. So, from the 16th year, you’ll start receiving the annuity payouts at the rate of 6%. Now, let’s say that the annuity rate in these 15 years drops to 4%. Or, say, it climbs up to 8%. In either case, you’ll still receive the annuity amount at the rate determined at the time of purchase, i.e., 6%.

There are multiple customization options available under a General and Single-Premium Annuity Plan. With these customization options, you can choose -

• The premium amount you want to invest.
• The income you want to receive in your post-retirement life.
• To begin the annuity payouts right after you make the investment or after a certain period of time, etc.
• To receive the annuity as long as you live or for a certain period of time, etc.

Please note that the customization options available to you will vary from product to product. So, ensure you go through the policy wordings/ brochure carefully before investing.

You also have the option of adding your spouse to the Annuity Plan. This can be done by buying a Joint Life Annuity Plan.

Under a Joint Life Annuity Plan, you’ll be the primary annuitant and your spouse will be the secondary annuitant. The secondary annuitant will continue to receive the annuity payout if the primary annuitant passes away. However, whether they’ll receive 100% or 50% of the annuity will depend on the product and insurer you choose.

Some General Annuity and Single-Premium Annuity Plans also pay a death benefit, i.e., a fixed amount of money to your nominee in the unfortunate event of your death. Most insurance companies will return the purchase price, i.e., the total premium amount paid under the Annuity Plan. This is called the Return of Purchase Price.

The term of this death benefit could differ from plan to plan. Some may cover the entire accumulation and payout period, and others could cover only for a partial period.

The amount that the insurer will pay to your nominee as the death benefit will vary across products. The insurer can either pay -

Specific percentage of purchase price / premiums

Here, the insurer will pay a percentage of the total premiums you’ve paid as the death benefit. This percentage may range from 50% of the total premiums paid to 110% of the total premiums paid.

Continuation of Annuity

In case you choose to receive the annuity only for a specific period of time, and pass away before all the annuity payouts are made, the insurer will continue to pay the annuity to your nominee for the remaining period.

Return of Balance Purchase Price

Under this, the insurer will deduct the annuity they’ve already paid to you from the total premiums you’ve paid. They will then pay the balance amount, i.e., the balance purchase price to your nominee. In case the annuity amount that has already been paid exceeds the purchase price, the insurer will not pay anything to your nominee.

Last but not the least, you can also get tax advantages on the money you invest in a General or a Single-Premium Annuity Plan. You can get benefits of up to Rs. 1.5 Lakhs under Section 80C of the Income Tax Act, 1961.

Please note: The annuity, i.e., the amount you receive regularly under Annuity Plans is considered as income. Therefore, it will be taxable as per your income tax slab.

General and Single-Premium Annuity Plans offer multiple benefits besides financially securing your retirement years. Some of these plans offer tax benefits on the premium amount you pay and a death benefit to your nominee in case you pass away. Under some plans, you have an option of adding your spouse to the plan as well. Further, these plans are highly customizable - they offer multiple options to design the plan exactly as per your requirements.

The next important step is to zero down on the type of plan you need. Both general and single-premium annuity plans are divided into various types of plans to cater to your needs - go to our next article to find out!