Ch. 6: Customization Options Available Under Single Premium Annuity Plans

While a Single-Premium Annuity Plan helps you live a worry-free life after you retire, it certainly isn’t a one-size-fits-all product. This is why there are several customization options available under a Single-Premium Annuity Plan. Insurance companies provide these options so that the plan can be tailored to your requirement.

In this article, let’s take a look at these customization options.

There’s a Deferred Annuity Plan available in the market, which allows you to defer or delay the annuity payouts. Meaning, you get an option of starting the annuity payouts after a specific time period, known as the ‘deferment period’.

Now, this deferment period that you get to choose may vary from insurer to insurer. Generally, the minimum deferment period under Single-Premium Annuity Plans is 1 year. And, the maximum deferment period may range from 15 to 20 years. After this deferment period is completed, the insurance company will start paying the annuity or the income to you.

For instance, Sita and Gita both buy a Single-Premium Annuity Plan where they make the premium payment in 2020. Now, let’s assume Sita’s Annuity plan has a deferment period of one year, whereas Gita buys the plan with a deferment period of 10 years.

This means that Sita will start receiving the annuity from 2021 onwards. Gita, however, will have to wait for 10 years before she can start getting the annuity payouts.

Basically, under Annuity Plans, you’ll receive the annuity, i.e., a regular income in your post-retirement years. You can customise how long you want to keep receiving this income for. Generally, insurers offer two options -

• You continue receiving the annuity or the income throughout your lifetime. For this, you’ll have to buy a Life Annuity Plan.
• You can choose to receive the annuity payout for a fixed number of years, say 5 years, 10 years, 15 years, 20 years, etc. For this, you’ll have to invest in a Certain Annuity Plan.

For example, Addy, 45, plans to retire after 15 years, i.e., at 60. Let’s assume that he invests an amount of Rs. 1 Crore (without tax) under an Annuity Plan. He wants to start receiving the payout after a deferment period of 15 years, i.e., when he reaches the age of 60 years.

Now, Addy also has an option of customising the payout period, i.e., for how long he wants to receive the annuity payout.

• If he wants to receive a regular income throughout his lifetime, he can buy the Life Annuity Plan.
• If he wants to receive the annuity for a specific number of years, say, 10 years, he can buy the Certain Annuity Plan.

Next, you can also customise how frequently you want to receive the annuity payouts under the policy. Mostly, insurers offer four payout frequency options -

• Monthly Frequency Payout Option
• Quarterly Frequency Payout Option
• Semi-annual Frequency Payout Option
• Annual Frequency Payout Option

Depending on your requirements, you can choose any one of the above options.

If you choose this option, the annuity that is paid to you will increase annually at a fixed rate of 3% or 5%. This rate may differ from insurer to insurer.

Suppose Priyanka, 40, invests Rs. 50 Lakhs (without tax) in an Annuity Plan. And, she buys the plan with the increasing annuity option. As per the policy conditions, the annuity payout she’ll receive will increase by 3% every year.

Let’s say the insurer will pay an annuity of Rs. 2 Lakhs to Priyanka in the first year. In the 2nd year, the insurer will pay an annuity of Rs. 2,06,000 (2,00,000 + 3% of 2,00,000). Then, in the 3rd year, she'll receive an annuity of Rs. 2,12,000 (2,06,000 + 3% of 2,00,000). And so on.

With this option, you can add your spouse under the same Annuity Plan. If you buy a plan with this option, you’ll be the primary annuitant, and your spouse will be the secondary annuitant.

In case you (the primary annuitant) pass away, the insurer will continue paying the annuity to your spouse (the secondary annuitant). They may either be paid 100% or 50% of the annuity amount, depending on the product.

For example, Krutika buys an Annuity Plan with the Joint Life Annuity Option. As per the policy terms and conditions, the insurer will pay 50% of the annuity amount to the secondary annuitant (her husband) in case the primary annuitant passes away. Let’s assume that Krutika is supposed to receive an annuity of Rs. 1 Lakhs every year for a period of 20 years - and she passes away in the 16th year. So -

• Krutika will receive a regular income of Rs. 1 Lakhs annually for 15 years.
• From the 16th year (after Krutika passes away), the annuity payout will be made to her husband. The annuity her husband will get will be reduced to Rs. 50,000 (50% of 1 Lakh).

This brings us to the end of this article. We hope this article helped you gain enough clarity on the customization options available under a Single-Premium Annuity Plan. With the help of these options, you can design the plan exactly as per your preferences.