The annuity refers to retirement solutions allowing an individual to cross the retirement years.
Insurance in its simplest definition is to protect against future financial risks. Human life involves two main risks; one is death and the other is living too long. Both risks have strong financial implications for the family and for oneself and must be planned in advance. Life insurance offers solutions for these specific risks in the form of life coverage solutions and annuity solutions.
Life coverage protects an individual’s dependents against the financial implications of losing a breadwinner; where, on the death of an insured, the insurance company pays the nominee a sum insured instead of the premiums paid. These solutions come in the form of pure temporary cover or insurance plans linked to savings. When considering these policies, it is important to select an insured sum that can cover the responsibilities and future expenses of the family.
The annuity, on the other hand, refers to retirement solutions allowing an individual to cross the retirement years, that is to say to ensure financial protection during a phase of life when the physical capacity of a person to gain has reduced. The key factors to consider when looking for a suitable annuity plan are the increase in inflation rates in the future as well as the amount that would be required to maintain a decent lifestyle and cover medical needs, the optionally.
It has been observed that a normal individual is generally preoccupied with planning various family needs and immediate and future financial goals. However, in the life decision-making process, creating a long-term retirement body takes a back seat. Many people start planning for retirement at a much older age with limited funds available. Thus, the focus should be on incorporating annuity planning at a much earlier stage in life.
Annuity products come in different forms –
A fixed annuity guarantees payment of a fixed amount for the duration of the contract. He cannot descend (or ascend).
A the variable annuity fluctuates with the returns of the mutual funds in which it is invested. Its value can go up (or down).
a immediate annuity where the pension begins as soon as the buyer pays a lump sum to the insurer.
A deferred annuity where the pension begins after a fixed premium payment period.
Main features of the annuity product –
Lifetime income – Annuity products ensure that after retirement you will receive income for as long as you live
Several options – The products offer several options such as the return of the purchase price, the annuity guaranteed for a certain period, the increased annuity,
Common life – The reversible life annuity ensures that your financial dependent continues to receive payments after your death
Immediate or deferred income – If you want to receive an income immediately, an immediate annuity is the best option. And, if it’s after a few years, deferred annuity is the way to go
Receive income at your convenience – You can receive annuity payments in monthly, quarterly, semi-annual or annual installments
Fiscal advantages – the premium paid to the annuity plan is eligible for a tax deduction under Article 80 CCC of the Income Tax Act, 1961
How to improve pensions?
Currently, annuity income is taxable. It would be much more beneficial for retirees if they did not have to pay tax on their annuity income because these payments come from the money they saved over their lifetime, money that was previously taxed.
India has a significant portion of its domestic population in the income category below Rs 5 lakh. A group where building a large retirement corpus is a challenge, so focusing on creating solutions for this segment to encourage regular savings towards an annuity solution should be one of the key factors. a stable society.
For a country like India with a large population of young people who are in need of retirement solutions, the annuity market and demand continues to underline once again the need for individuals to include annuity in financial planning at one. earlier stage.
The author is Managing Director and CEO, Shriram Life Insurance