All you need to know about immediate annuity plans

All you need to know about immediate annuity plans

Retirement is that period of your life when your regular income stops. However, your lifestyle and medical expenses continue irrespective of your income. In this situation you need to arrange for a source of income to fund your lifestyle expenses. This is where retirement oriented life insurance plans come into the picture. These plans are called pension or annuity plans and an immediate annuity plan helps you substitute your income even in your retired years. Do you know who? Let’s explore –

What is an immediate annuity policy?

Immediate annuity is a type of life insurance pension plan. Under this plan, you are promised a series of annuity payments for as long as you live. Moreover, there are joint life immediate annuity plans as well which promise annuity payments for the lifetime of your spouse as well.

Features of immediate annuity plans

Immediate annuity plans have the following salient features –

  1. Single premium is payable under the policy which is called the purchase price
  2. You can choose the annuity payment frequency which can be monthly, half-yearly, quarterly or annually
  3. The person on whose life the annuity is paid is called the annuitant
  4. There are different annuity payment options and you can choose any option
  5. Annuity can be chosen to be received on a single life or joint life. In case of joint life annuities, the spouse can be covered. The policyholder would be called the primary annuitant and the spouse would be the secondary annuitant
  6. The annuity stops on death of the annuitant

Annuity payment options

As stated earlier, there are a lot of annuity payment options under an immediate annuity plan. These options include the following –

Annuity option Meaning
Annuity for life Annuity is paid till the lifetime of the annuitant
Annuity certain Annuity is paid for a certain guaranteed period which can be 5, 10, 15 or 20 years whether the annuitant survives this period or not. If, however, the annuitant survives the guaranteed period, annuity is then paid for his/her lifetime
Annuity for life and return of purchase price Annuity is paid till the lifetime of the annuitant. When the annuitant dies, the purchase price is refunded back to the nominee
Joint life annuity Annuity is paid till the lifetime of the primary annuitant. On death of the primary annuitant, if the secondary annuitant is alive, the annuity is paid till the lifetime of the secondary annuitant. The rate of annuity payable to the secondary annuitant can be 50% or 100% of the annuity paid to the primary annuitant
Joint life annuity with return of purchase price Annuity is paid till the lifetime of the primary annuitant. On death of the primary annuitant, if the secondary annuitant is alive, the annuity is paid till the lifetime of the secondary annuitant. The rate of annuity payable to the secondary annuitant can be 50% or 100% of the annuity paid to the primary annuitant. When the secondary annuitant also dies, the purchase price is refunded back to the nominee
Increasing annuity Annuity is paid till the lifetime of the annuitant. This annuity increases every year at simple or compound rate of interest. The rate of interest depends on the plan and ranges between 3% to 10%

How does immediate annuity plan work?

When you buy an immediate annuity policy, here’s how the plan would work –

  1. You buy the policy by paying a lump sum amount premium at once.
  2. You have to choose the annuity payment option that you like. There are different annuity payment options and you can choose any one as per your requirement
  3. You also have to choose the annuity payment frequency.
  4. Once you have bought the policy and chosen the annuity payment option and frequency, you would start receiving annuity pay-outs immediately from the next frequency. For instance, if you buy the policy on 1st January and choose monthly payment frequency, annuity payments would commence from 1st February
  5. The amount of the annuity is fixed and is specified beforehand
  6. The annuity payment would continue for as long as you are alive. In case of joint life annuities, annuity payments continue till the lifetime of the last survivor
  7. On death, the payments would stop and the policy would be terminated. The availability of death benefit would depend on the annuity payment option that you have selected

Benefits of immediate annuity policies

By buying immediate annuity plans, you get the following benefits –

  • You get a regular stream of income which are guaranteed throughout your lifetime
  • You can ensure financial security for your spouse by choosing joint life annuity wherein your spouse would get annuity if you predeceased him/her
  • If you choose the annuity option which returns the purchase price, you can leave behind a legacy for your family after your demise
  • Immediate annuity plan ensures that you remain financially independent even after you retire

Drawbacks of immediate annuity policies

Though immediate annuity insurance promises the above-mentioned benefits, there are one or two drawbacks which you cannot overlook. These include the following –

  1. If you choose an annuity for life and then you die after a few years, the insurance company would be left with a large part of your retirement corpus which would be retained by them
  2. Once started, you cannot cancel the annuity payments. This might prove to be a problem if you invest all your retirement funds in an immediate annuity plan and then face a financial contingency which requires funds

Barring these drawbacks, immediate annuity plans provide a lot of benefits and should be chosen if you need regular income after you retire.

Tax implication of immediate annuity plans

Annuity plans have different tax implications compared to other life insurance plans. These implications are as follows –

  • Tax implication of the premium paidThe premium paid for the plan is allowed as a deduction under Section 80CCC. The maximum limit of deduction is INR 1.5 lakhs which also includes deductions under Section 80C.
  • Tax implication on annuity receivedAnnuity payments qualify as income in your hands. They are added to your total income and are taxed at your relevant tax slab rates.

Companies offering immediate annuity plans

Though immediate annuity policies are offered by almost all life insurance companies, here are the best plans for you to buy –

  1. LIC’s Jeevan Shanti PlanThis plan combines immediate and deferred annuity benefits and has the following features:
    1. You can choose to receive annuities immediately or after a specified period
    2. There are nine annuity options offered by the plan
    3. If you choose the deferred annuity option, you get guaranteed additions added to your corpus during the deferment period
    4. You can take a joint life annuity with spouse, siblings, grandparents, grandchildren, parents or children

    Plan parameters

    Entry age 30-85 years
    Purchase price Minimum – INR 1.5 lakhs
    Maximum – No limit
    Annual annuity rate Minimum – INR 12,000
    Maximum – no limit. Depends on the purchase price paid
  1. ICICI Pru Immediate Annuity PlanThis plan is also quite popular which has the following salient features:
    1. There are 12 annuity options offered by the plan
    2. You can choose to get a refund of the purchase price on death, critical illness or accidental permanent disability
    3. You can choose deferred annuity payments and receive annuities from a later date
    4. National Pension Scheme subscribers can claim a discount of 0.5% on the purchase price
    5. You are promised higher annuity rates if you choose to defer your annuity incomes or if you pay higher levels of purchase price
    6. You can top-up your annuity amount by paying an additional purchase price

    Plan parameters

    Entry age 30 years onwards
    Purchase price Depends on the annuity income that you want to receive and the entry age
    Annual annuity rate Minimum – INR 12,000
    Maximum – no limit. Depends on the purchase price paid
  1. HDFC Life New Immediate Annuity PlanHDFC is a leading name in the life insurance industry and its immediate annuity plan also comes with all the benefits. The features of the plan are as follows:
    1. 11 annuity pay-out options are available under the plan
    2. The annuity rates are higher if you pay a higher purchase price

    Plan parameters

    Entry age 20-80 years
    Purchase price Depends on the annuity income that you want to receive and the entry age
    Annual annuity rate Minimum – INR 10,000
    Maximum – no limit. Depends on the purchase price paid

Buying immediate annuity policies:

You can buy immediate annuity plans online through Turtlemint. Turtlemint gives you the following advantages of buying an immediate annuity plan from its platform –

  • A choice of the best immediate annuity plans available in the market
  • The facility to compare and buy the best plan which offers the highest rate of annuity
  • Complete guidance in buying the policy by solving all your product related queries
  • Dedicated claim assistance department which helps you in getting your claims settled easily and conveniently

To enjoy these benefits and to buy immediate annuity coverage from Turtlemint, here are the steps which you should take –

  • Visit Turtlemint’s life insurance page at https://www.turtlemint.com/life-insurance
  • Choose the coverage need ‘Pension/Retirement’
  • Fill in your personal profile wherein the following details would be required –
    • Your gender
    • Date of birth
    • Annual income level
    • Smoking preference
    • Retirement age
    • Preferred investment tenure
    • Mode of investment and amount of investment
    • Your name, phone number and email ID
  • In the next page you would be able to see handpicked plans as per your coverage requirements
  • You can select the most suitable policy and buy it by paying the premiums online

When you buy an immediate annuity plan, you would have to submit the following documents –

  • Your photographs
  • Age proof
  • Identity proof
  • Address proof
  • Any other documents as required by the insurance company

Once the required documents are submitted, the insurance company verifies your proposal and issues you the policy.

Immediate annuity plans are the best way to substitute your income after you retire. These incomes would continue till you live. You can also ensure annuity incomes for your spouse in your absence creating financial security for your family. So, if you are nearing retirement and you have a retirement corpus in your hands, invest in an immediate annuity plan and get assured income even without having to work.

Frequently Asked Questions

  1. What is the meaning of vesting age?Vesting age is the age from which you start receiving annuity payments.
  1. Do immediate annuity plans offer any discounts?No, there are no discounts under immediate annuity plans. However, many immediate annuity plans offer higher annuity rates if the purchase price is high.
  1. What would happen if the secondary annuitant dies before the primary annuitant?If the secondary annuitant dies before the primary annuitant, the annuity payments would stop after the death of the primary annuitant.
  1. On what factors do annuity rates depend?Annuity rates depend on the following factors –
    • Vesting age of the annuitant – annuity rates are higher at higher ages
    • Type of annuity payment option selected – rates are lower under joint life annuities than under single life annuities
    • Amount of purchase price – higher the purchase price higher would be the annuity rate
    • Annuity payment frequency – the lower the payment frequency the higher would be the annuity rate
  1. Can I change the annuity payment frequency after buying the immediate annuity policy?No, once the policy is bought, the annuity payment frequency cannot be changed.

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