Is insurance-based retirement plan worth buying?

Retirement planning is the only financial goal where you cannot afford a "do-over." If you run out of money at age 80, you cannot go back to work. This high-stakes reality makes people nervous, and rightly so.

In the current financial landscape of late 2025, you are bombarded with choices.

• “Buy stocks! The Sensex is booming.”
• “Buy gold! It’s the only real money.”
• “Buy real estate! Rent is forever.”

Amidst this noise, the Insurance-Based Retirement Plan (often called a Pension Plan or Annuity) stands quietly in the corner. It doesn't promise to double your money in 3 years. It doesn't offer the thrill of a bull market.

So, is it worth your hard-earned money?

To answer this, we need to stop looking at "Returns on Investment" (ROI) and start looking at "Return on Lifestyle."

In this comprehensive guide, we will dissect the mechanics of insurance retirement plans, the major 2025 regulatory changes (like the GST waiver), and why having a "boring" income stream might be the smartest decision you ever make.

The short answer: Yes, for the "Sleep Well" portion of your portfolio

An insurance-based retirement plan is not designed to make you rich; it is designed to ensure you never become poor. While mutual funds offer higher returns, they carry the risk of market crashes right when you need the money. Insurance-based plans (specifically Annuity and Pension Plans from insurers like ABSLI) offer the unique benefit of Longevity Protection, they pay you a guaranteed# income for as long as you live, even if you live to be 100. In a balanced portfolio, they are the "safety anchor" that allows you to take risks with the rest of your money.

The "Three Buckets" of a Perfect Retirement

To understand where insurance fits, you must visualize your retirement corpus not as one big pile of cash, but as three distinct buckets.

Bucket 1: Liquidity (Emergency Cash)

• Purpose: To handle sudden medical bills or house repairs.
• Tool: Savings Account, Liquid Funds, Fixed Deposits.
• Role of Insurance: None.

Bucket 2: Growth (Inflation Beater)

• Purpose: To ensure your lifestyle keeps up with rising prices over 20-30 years.
• Tool: Equity Mutual Funds, Stocks, Real Estate.
• Role of Insurance: Low. (Though ULIPs play a role here).

Bucket 3: Security (The Floor Income)

• Purpose: To pay for the non-negotiables: Groceries, Electricity, Maintenance, Medicine.
• Tool: Insurance Annuity Plans.
• Role of Insurance: Critical.

The "Worth It" Verdict:

If you try to use insurance for Bucket 2 (Growth), you will be disappointed because the returns are conservative (5-7%).

But if you use insurance for Bucket 3 (Security), it is unbeatable. No other financial product guarantees a paycheck for life.

The "Longevity Risk": The Problem Only Insurance Solves

Here is a scary thought: What if you live too long?

Imagine you retire at 60 with ₹2 Crore in a Mutual Fund.

• You withdraw ₹1 Lakh a month.
• The market crashes in your 70th year.
• You panic and withdraw more to cover losses.
• By age 85, the bucket is empty.
• But you are still alive.

This is called Longevity Risk. Modern medicine is keeping us alive longer. Living to 90 or 95 is becoming the norm.

How Insurance fixes this:

When you buy an Annuity Plan from ABSLI, you transfer this risk to the insurer.

• You pay them a lump sum at age 60.
• They promise to pay you, say, ₹1 Lakh/month.
• If you live to 105, ABSLI continues to pay. They cannot stop. They cannot say "your fund is empty."

This guarantee is why it is worth buying. You are buying immunity from the risk of outliving your savings.

The 2025 Game Changer: 0% GST

For years, one of the biggest complaints against annuity plans was the GST.

If you bought an annuity plan for ₹1 Crore, you had to pay 1.8% GST (approx ₹1.8 Lakh) to the government instantly. It felt like a penalty for saving.

The Update (Late 2025):
Recent regulatory changes have waived GST on Annuity Plan premiums.

• Impact: Your entire ₹1 Crore now goes into the investment. There is no leakage.
• Why it matters: This immediately boosts your effective return rate. It makes the product significantly more attractive than it was just two years ago.

Types of Insurance Retirement Plans

To decide if it's worth it, you need to know what you are buying.

1. Deferred Annuity (The "Accumulation" Phase)

• For whom: You are 40 or 50 and want to build a corpus.
• How it works: You pay premiums for 10-15 years. The money grows (either at a guaranteed^# rate or market-linked). At age 60, it converts into a pension.
• Pros: Disciplined savings. You can't spend the money on a whim.
• Cons: Returns might be lower than a pure Equity Mutual Fund.
  
  

2. Immediate Annuity (The "Pension" Phase)

• For whom: You are 60 and have a lump sum (from EPF, Gratuity, or property sale).
• How it works: You give the lump sum to ABSLI and the pension starts next month.
• Pros: Immediate cash flow. Interest rate lock-in for life.
• Cons: Your capital is locked (usually).

The "Interest Rate Lock" Advantage

This is a subtle but powerful benefit.

The Scenario:

• In 2025, interest rates are decent (say 7%).
• You retire and put your money in a Fixed Deposit (FD) that gives 7% for 5 years.
• In 2030, the FD matures. But now, interest rates in the economy have fallen to 4% (common in developed economies).
• Your income suddenly drops by half.

The Insurance Advantage:
If you buy a Guaranteed^# Annuity Plan today, you lock in the current rate for life.

Even if bank FD rates drop to 2% in the year 2040, ABSLI is contractually obligated to pay you the rate you signed up for in 2025.You are effectively "immunizing" your income against future economic downturns.

The "Tax" Reality Check

Is it worth it tax-wise? This is a mixed bag.

The Good News (Commutation):
When your accumulation plan matures (at age 60), you can withdraw up to 60% of the corpus Tax-Free* (under current rules for many pension structures, similar to NPS). This is your "fun money" for a world tour or house repairs.

The "Okay" News (Annuity Income):
The remaining 40% must be used to buy an annuity. The monthly pension you receive from this is taxable as "Income from Other Sources."

• Critique: Many people hate this. "Why pay tax on my own money?"
• Counter-point: During your retirement years, your overall income is likely lower, so you might fall in a lower tax slab (or the tax-free* rebate limit).

The Behavioral Benefit: You can't "Raid the Piggy Bank"

We are human. We make emotional mistakes with money.

• “My daughter needs a grand wedding. Let me break my Mutual Fund.”
• “My son needs a business loan. Let me break my FD.”

Retirees often deplete their own safety net out of love for their children, leaving themselves vulnerable in their 80s.

Insurance plans are rigid by design.

Most annuity plans do not allow you to withdraw the capital (except for critical illness).

• Is this a flaw? No, it is a feature.
• Benefit: It protects you from your own generosity. It ensures that no matter what family drama happens, your monthly cheque arrives on the 1st of every month.

Comparison: Mutual Funds vs. ABSLI Pension Plans

Who should buy it? (And who should avoid it)

BUY IT IF:

1. You crave certainty: You sleep better knowing exactly how much money will hit your account next month.
   
2. You have no other pension: If you don't have a government pension, you need to create a private one.
   
3. You fear outliving your savings: Your family history suggests you will live into your 90s.
   
4. You want to protect your spouse: You can choose a "Joint Life" option where the pension continues for your spouse after your death.
   
   

SKIP IT IF:

1. You are extremely wealthy: If your assets are 50x your expenses, you don't need insurance guarantees.
   
2. You have a serious illness: If your life expectancy is short, locking money in a lifetime annuity is mathematically poor (unless you choose a "Return of Purchase Price" option).
   
3. You need the capital soon: If you plan to buy a house in 5 years, do not lock money here.
   
   

Strategies to maximize value

If you decide to buy, use these smart hacks:

1. Defer the Payout:
   If you retire at 60 but have enough savings for 5 years, buy a "Deferred Annuity". Tell ABSLI to start paying you at age 65. The interest rate offered will be significantly higher because you waited.
   
   

2. Return of Purchase Price (ROP):
   Choose the option where, upon your death, the original invested amount (e.g., ₹1 Crore) is returned to your nominee.

• Trade-off: The monthly pension will be slightly lower.
• Benefit: You leave a legacy for your kids (Wealth Preservation).
  
  

3. The "Ladder" Approach:
   Don't put all your money in at once. Buy one annuity at 60, another at 65, and another at 70. This helps you capture different interest rate cycles.

Final Thoughts

So, is an insurance-based retirement plan worth buying?

If you are looking for excitement, high returns, and adrenaline, No.

If you are looking for dignity, independence, and a paycheck that never stops, Yes.

A smart retirement portfolio isn't about choosing between investments and insurance. It is about using both.

Use your Mutual Funds to buy the luxuries (the car, the travel, the gifts).

Use your ABSLI Annuity to buy the necessities (the bread, the bills, the peace).

When you are 85 years old, the market might be crashing, but your SMS will still ping: "Your Account has been credited." That notification is priceless.