After the insurance regulator’s guidelines, life insurance companies are launching Saral Pension, a standard immediate annuity plan which offers the same terms and conditions across all the life insurers. The single premium, non-linked, non-participating, individual immediate annuity plan offers lifelong guaranteed rates, right at the time of purchase which make it easier for customers to make an informed choice. The simple features and standard terms and conditions will also reduce mis-selling of life insurance products. Annuity plans ensure that one continues to live a comfortable life even after retirement. On payment of a lump sum amount, a policyholder can choose one type of annuity from two available options—life annuity with return of 100% of purchase price or joint life last survivor annuity with return of 100% of purchase price on death of last survivor.
The joint life option works well for those who want to extend the benefit to their spouse. The lifetime guarantee on the annuity receivable irrespective of interest rate changes in future makes the product really attractive. The minimum entry age for the policy is 40 years and the maximum is 80 years.
Safeguard against volatility
The policy offers flexibility to policyholders to receive guaranteed income on yearly, half-yearly, quarterly, or monthly frequency. It offers a loan facility to the policyholder after six months of the purchase in case of a financial difficulty. The policy can be surrendered any time after six months if the annuitant or the spouse or any of the children of the annuitant is diagnosed as suffering from any of the specified critical illnesses. On surrender, 95% of the purchase price will be paid to the annuitant after deduction of outstanding loan amount and loan interest, if any. On payment of surrender value, the policy will be terminated.
Srinivasan Parthasarathy, chief actuary, HDFC Life, says annuity plans are suitable for individuals closer to retirement age or already retired. “These plans can act as a safeguard against market volatilities and falling interest rates. One starts receiving regular payments right after purchasing the product which ensures steady and regular income with locked-in annuity rates for the rest of their life,” he says.
Bikash Chaudhary, appointed actuary and chief risk officer, Future Generali India Life Insurance, says the product will help customers achieve financial independence during their retirement years without any worry of change in interest rates in the future. “Such a simple product will make it easier for the customers to make an informed choice,” he says.
The pricing of the product is left to the insurers. The annuity rates will have to be derived based on actuarial principles. The minimum annuity amount will be Rs 1,000 per month, Rs 3,000 per quarter, Rs 6,000 per half year and Rs 12,000 per annum. There is no maximum limit for the annuity and insurers can pay higher annuity rates for large purchase prices. Insurers also pay a higher rate if the policy is purchased online. The policyholder will have to pay tax at his marginal rate on the annuity amount received.
Insurers will have to derive band-wise annuity rates – Band 1: less than Rs 2 lakh; Band 2: Rs 2-5 lakh; Band 3: Rs 5-10 lakh; Band 4: Rs 10-25 lakh; and Band 5: above Rs 25 lakh. In case of joint life annuity, life insurance companies will calculate annuity rates based on actual age difference between the principal annuitant and his or her spouse.
A policyholder can take a loan against the policy, subject to the condition that the maximum amount of loan will be such that the effective annual interest amount payable on loan does not exceed 50% of the annual annuity amount payable under the policy. Insurers will recover the loan interest from the annuity amount payable under the policy and will accrue as per the frequency of annuity payment under the policy. The loan outstanding shall be recovered from the claim proceeds under the policy. However, the annuitant has the flexibility to repay the loan principal at any time during the period of the annuity payments.