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6 Benefits of Buying an Annuity Plan

dateKnowledge Centre Team dateSeptember 03, 2021 views214 Views
Annuity Plans | Best Retirement and Pension Plan | Saving Plans

Retirement is a mix of different investment stages and options. An annuity is one of the final stages of a retirement plan. An annuity is a term used for referring to an investment option that allows you to draw a regular income. Though you don’t need to retire to start the income, you should start after retirement only.

The best annuity plans will help you mitigate the risk of outliving your savings. The primary aim of the annuity plan is to turn your retirement corpus into safe and long-term income.

What are the Benefits of Buying an Annuity Plan?

Annuities generate a guaranteed income stream, often over the lifetime of the holder and his/her spouse. There are no other financial products that do this. Debentures can pay back interest until maturity. Stocks can grow wealth in the long run. But neither of these instruments can give guaranteed income over a lifetime.

Life insurance annuity plans like Pension4Life from Canara HSBC Oriental Bank of Commerce Life Insurance are best for creating a stream of reliable post-retirement income. Other plans like Invest 4G offer a great way to build your corpus as well.

Annuities provide the following key benefits:

1. Safe & Reliable Income

To manage post-retirement expenses, you may save some amount each month from your current income. But saving alone may not help you reach a corpus that you have to, to sustain your standard of living even after retirement.

The saving should also work hard so that it grows multi-fold by the time you retire. Annuities are among the safest available financial instruments that create wealth as stocks do, but with much lesser volatility and risk. You can choose the frequency of pay outs and opt for monthly, quarterly, half-yearly, or yearly streams.

Annuities are technically the same as insurance policies and not made for short-term investments or gains. Annuities offer guaranteed income streams for the rest of your and your spouse’s life. You can additionally use annuity plans to return the purchased corpus to your nominee after your spouse’s demise.

Moreover, there is an assurance for the family to opt for a return of purchase price in case of your demise.

2. Wealth Boosters

Insurance investments are designed to gain from the dynamics of movements in the financial markets to give you superior returns in the targeted period. You can also avail of higher annuity instalments for the increased purchase value. If you purchase an annuity online, your annuity rate will increase by 2%. For NPS subscribers that have purchased through the sales team or online channel, Canara HSBC Oriental Bank of Commerce Life Insurance offers an increase in annuity rates by 1%.

3. Loyalty Additions

Canara HSBC Oriental Bank of Commerce Life Insurance offers an increase of 1% for annuities purchased by existing policyholders of the company.

4. Automated Portfolio Strategies

If you use plans like Invest 4G to build your retirement corpus and receive pension income from it, you can benefit from the multiple investment options. You can invest your money in both debt and equity instruments based on automated or pre-determined allocation strategies.

When you are young, the plan helps you invest aggressively in equity-oriented funds and receive better growth for your retirement funds. You can switch the funds to the safe debt and liquid funds from equity and continue the plan up to the age of 80.

The partial withdrawals after retirement will be tax-free.

5. Tax-Savings U/S 80C & 10(10D)

The amount paid towards the premium is deductible under Section 80C up to Rs. 1.5 lakhs. Whereas plans like Invest 4G also allow tax-exemption on the amount withdrawn under Section 10(10D). The tax saving works on annuity plans provided by life insurers under the following conditions:

  • The annual investment in the plan is less than 10% of the life cover
  • Maximum annual investment in ULIP plans should not exceed Rs 2.5 lakhs (for ULIPs bought after 1st Feb 2021)

6. High Liquidity

Your money is not “stuck” as you may assume. Annuities offer more liquidity than most people think. The policy allows withdrawal under the “Special Surrender Value” status. Meaning, as long as specified conditions are met, you can withdraw your money.

Stages of Retirement Plan for Annuity

The pre-retirement saving phase is called the “accumulation phase” whereas the post-retirement pay out phase is termed as “vesting phase”. Annuities are the investment option you can use in the vesting phase. You can still invest in two types of annuities:

- Immediate annuity
- Deferred annuity

In case you are already at retirement age and have a lump sum amount, you can buy an “immediate annuity”. Thus, the pay-out begins immediately in form of cash flows paid at specified intervals (monthly/quarterly/annually).

However, if you want to start the income a few years later, the deferred annuity is a better option.

Joint Life Annuity

In both types of annuities, the annuity can continue for either a fixed period or for your lifetime. However, when your spouse is dependent on your pension, you do not want it to stop after your demise. Thus, you can opt for a joint life annuity.

A joint life annuity implies that your spouse will continue receiving income streams even after your demise. Through the process of annuitization, your contributions are converted into periodic pay outs that can last your lifetime as well as that of your spouse. The annuitized payments continue even if the total pay outs are more than the saved corpus with interest factored in.

In case of Immediate Life Annuity with Return of Purchase Price on Critical Illness (CI) or Accidental Total & Permanent Disability (ATPD) or demise before age 85, whichever occurs earlier, annuity pay outs will cease, and 100% of the purchase price will be payable.

Canara HSBC Oriental Bank of Commerce Life Insurance permits surrender of annuities if they are immediate/deferred single/joint-life annuity with return of purchase price option. However, tax on surrendered value is subject to applicable taxation that is in force.

You can also avail loans on the policy provided you have opted for ‘Deferred Life Annuity with Return of Purchase Price’ and the policy has attained the surrender value stage.

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Frequently Asked Questions (FAQs) for Retirement and Pension Plans

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the Premium calculator available in the ‘Tools and Calculator’ section of www.canarahsbclife.com.

The Invest 4G plan offers three benefit options to choose from. If you have opted for the Life Option or Whole Life Option, the insurer will pay the nominee(s) death benefit if the policyholder meets with an unfortunate incident. However, in the Life Option with Premium Funding, the policy continues even after the death of the policyholder. The company pays the remaining premiums until the policy matures.

Life is unpredictable and so it is important to prepare for all eventualities. If you regularly save a substantial amount of your income for retirement, the corpus may expand to a comfortable level before retirement. In case you become disabled and are unable to contribute to the retirement plans, most plans will continue to multiply your savings. The amount already accumulated will continue to grow and besides the existing plans you can also choose to invest in pension schemes specifically designed for people with disability.

Investment in ULIPs like Invest 4G plan qualifies for tax deductions under section 80C of the income tax law. The maturity benefits of ULIPs are also tax-exempt under section 10 (10D) of the Income Tax Act, 1961. However, if the premium paid during the policy term is more than 10% of the sum assured, the maturity proceeds will be taxable.

The concept of early retirement is catching up fast in India, but there are no specified ages for early retirement. While in some western countries the age between 35 and 45 is considered favourable for early retirement, in India the ideal age is 45-50 years. With the right planning and investments, it is not very difficult to retire early.

At the age of 35-40, people generally have several responsibilities such as children’s education and various EMIs. It is difficult to spare a substantial amount of income for retirement. Depending upon the needs of the household and the lifestyle, one should aim to save around 40-50% of his/her income. Around 10% of the income should exclusively be allocated for retirement planning. Here are some tips to choose the best retirement plan.

  • Focus on your needs: It is easier to formulate a strategy when the goal is clear. Make an estimate of the amount required to sustain your life. Take inflation into account and zero in on the targeted corpus.
  • Research thoroughly: Conduct thorough research before investing in any financial product. Read the term and conditions properly and try to understand how an investment product fits your needs.
  • Consider different products: The market is awash with all kinds of investment products. Do not follow conventional advice as the need of every person is different. Take into consideration all the suitable products, conduct an objective analysis and then invest.

Owning a house is a cherished dream for many. There are several ways to save for a new house, but in urgent cases, people may be tempted to withdraw from their retirement fund. There are various financial products for retirement planning, and all have different withdrawal rules. In the case of the National Pension Scheme, partial withdrawals for special purposes like buying a house are allowed only thrice during the policy tenure. However, to avail the withdrawal facility, you should be an NPS investor for at least 10 years and you are permitted to withdraw only 25% of your contribution. If you have a PPF account, you can withdraw 50% of the accumulated amount, but only after staying invested for at least 6 years. The Invest 4G plan also allows partial withdrawals after five years of investment.

The quantum of monthly savings depends on the specific needs of the buyer. Financial advisors, however, suggest people save around 15% of the monthly income for retirement.

Retirement plans such as NPS have a very low entry threshold. It is also open to all and anyone can open an NPS account and start saving. A small business can also invest in Invest 4G plan from Canara HSBC Oriental Bank of Commerce for as low as Rs 5000 every month.

The choice between paying off a student loan or start a retirement account is not a difficult one. Starting early for retirement planning has its own advantages but extending the student loan will increase the interest burden. You will have to find a balance between the two. Try to pay off the student loan as soon as possible, but do not hold back on investing in a retirement account.

Most people nominate their spouse to receive retirement benefits in their absence. But a spouse is not automatically entitled to be the beneficiary of a retirement account owned by the other spouse.

Gold is a safe investment asset and investors often flock to the yellow metal to stabilise their portfolios. Holding a small quantity of gold can be considered as the intrinsic value of gold remains intact. You can also choose to have an exposure to gold through ULIPs. ULIP funds invest in a variety of asset classes and some fund options also have a small exposure to gold. You can choose fund options with gold to have a small and indirect investment in gold.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

While there are no explicit rules barring the use of retirement account to finance real estate, it may not be advisable to do so. For instance, you are allowed to avail loan from the PPF account from the third financial year. The loan can be used to finance real estate, but it would defeat the purpose of having a dedicated retirement account.

The government has allowed all central government pensioners to open a joint account with their spouses.

Vesting date or age signifies when your pension plan’s accumulation phase is over and the distribution phase can begin. For example, in a deferred annuity plan, you may have a vesting date which is 10 to 30 years away depending on your age at entry. You will continue to invest or stay invested till the vesting date. After the vesting date or age, you can start receiving the pension or withdraw the money from the plan.

The steps may differ from plan to plan. However, you can buy the online retirement plans following the steps below:

  • Retirement Calculator: Use a retirement calculator to estimate your corpus need and expected monthly investment amount to achieve it
  • Choose Plan: Select the online retirement plan you want to start investing in
  • Contact Information: Fill in the personal details including the contact information. Make sure to put the correct e-mail ID which you can access since all future communication about the policy will take place via e-mail.
  • Define Your Investment: Select the goal, investment term, investment frequency and amount you want to invest (based on the calculator estimate)
  • Select Fund Allocation: Online retirement plans give you the option to invest in multiple assets including equity funds. You can select the ratio in which your premium will be allocated to these funds as per your risk appetite. Then select one of the portfolio rebalancing strategies.
  • Select Withdrawal Plan: You can withdraw money based on set milestone or systematically from the plan after the lock-in period. Select the options for withdrawal as per your plan.
  • Review Plan & Investment Details & Complete the Application Form

You can pay the premium amount before or after completing the application form to start investing.

The best time to plan your retirement is when you are planning your career. However, this may not be the time when you really start investing money for your retirement. You must start investing in your retirement plan as soon as you start earning.

Retirement is the only financial goal you cannot repair with other means of funding like a loan. Thus, developing the habit of investing with every income you have is the best way to have a comfortable retired life.

Insurance allows your family, especially your dependent spouse to continue living without financial worries if anything happens to you. Also, insurance may help you save enough for retirement in case of permanent disabilities. Additionally, life insurance retirement plans allow you to build a good retirement corpus with bonus additions.

Yes, you can change the nominee of the policy anytime you need. If you are using an Electronic Insurance Account (EIA) to manage your policies, you can change the nominees anytime from this account. Otherwise, you can contact the customer care to update the nominations on your policy.

You can opt for auto-debit of the premiums from your savings account. You can also pay the premiums online using your debit card, credit card or a payment wallet.

You can get Rs. 1 Core pension plan using the online retirement calculator. The calculator will assess your eligibility and provide you with the probable monthly or annual investment to achieve the goal. If the amount seems feasible you can complete the purchase online or set an appointment for a qualified advisor to help you in the process.

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