Ch. 5: Customization Options Available Under General Annuity Plans

In the previous article, we learned how General Annuity Plans work and how they can help safeguard your post-retirement life. Did you know these Annuity Plans come with multiple customisation options? With these options, you can design the policy in a way that it fits your post-retirement needs perfectly!

Without any further ado, let’s dive right into customisation options available under General Annuity Plans.

As the name implies, under limited pay, you can finish paying your premiums in a limited number of years. This option allows you to complete your premium payments in quicker instalments.

Insurance companies give you the option of choosing a premium payment term of 5 years, 10 years, 15 years, and so on. You can finish paying the premiums during this payment term you choose.

Besides the premium payment term, you can also customise the premium payment frequency under an Annuity Plan. Meaning, you can configure how frequently you want to pay the policy premiums.

Generally, insurance companies offer four payment options. You can choose to make the premium payments -

• Annually
• Semi-annually
• Quarterly
• Monthly

Based on your comfort, you can select any one of these options. Basically, you can choose the annual premium option if you can afford to pay large amounts every year. If you can’t, you can choose the other options.

Please Note: Irrespective of the premium payment frequency you choose, remember to set up auto-debit or standing instructions on your bank account. This will guarantee that your premiums are paid on time and that your policy does not lapse.

Under a Deferred Annuity Plan, you get an option of delaying the annuity payouts you’ll receive in your retirement years. You can choose to receive the annuity payouts after a specific time period, known as the ‘deferment period’.

This deferment period begins from the policy inception itself. So, suppose you pay the premiums for a period of 10 years and opt for a deferment period of 15 years. In this case, you’ll start receiving the annuity from the 16th year onwards.

The minimum deferment period in General Annuity Plans will be the premium payment term you choose. And, the maximum deferment period may differ from insurer to insurer - it may range from 15 to 20 years.

Insurance companies also allow you to customise the payout period, i.e., for how long you want to continue receiving the annuity. There are two options available for this -

• Life Annuity

  Here, you’ll keep receiving the annuity payout for as long as you live.
  
  For example, Ashi, 40, plans to invest in an Annuity Plan where she’ll keep on receiving a regular income throughout her life. She wants to retire at the age of 55.
  
  Let’s assume -
  

  • She invests an amount of Rs. 1 Lakh (without tax) annually under a Life Annuity Plan for a period of 10 years.
  • She wants to start receiving the annuity after a deferral period of 15 years.
  
  

  So, in this case, after Ashi turns 55, she’ll start receiving the annuity payout. And, she’ll continue to receive the payout for as long as she lives.




• Certain Annuity

  Here, you’ll receive the annuity payout for a specific number of years, say 10 years, 15 years, 20 years, and so on.
  
  For example, Sanket, 45, wants to receive a regular payout every year for a specific period after he retires at 55. So, he invests in a Certain Annuity Plan.
  
  Let’s assume -
  

  • He invests Rs. 2.5 Lakhs (without tax) every year for a period of 10 years.
  • He opts to receive the annuity payout immediately after he turns 55.
  • He chooses to receive the payout for a period of 20 years.
  
  

  So, here, the insurer will pay the annuity to Sanket until he reaches the age of 74 years.

Similar to the premium payment frequency, you also get an option of customising the frequency of getting the annuity payouts. Here, too, the insurance company offers four options.

You can choose to receive the annuity payouts -

• Monthly
• Quarterly
• Semi-annually
• Annually

As the name implies, if you buy a plan with this option, the annuity paid to you will increase annually by a specific percentage like 3% or 5%. This percentage may vary across insurers.

For example, Sapna is a 50-year-old architect who wants to save enough money for when she retires. So, she decides to invest in an Annuity Plan. She pays a premium amount of Rs. 5 Lakhs (without tax) annually in an Annuity Plan for a period of 10 years. And, she chooses to receive the annuity when she turns 65.

Now, let’s assume she buys the plan with the increasing annuity option, under which the payout she’ll receive will increase by 5% every year. Let’s see the annuity payable to her in this case..

• In the 1st payout year, the annuity payable to her will be Rs. 1 Lakhs.
• In the 2nd payout year, she’ll receive an annuity of Rs. 1,05,000 (1,00,000 + 5% of 1,00,000).
• In the 3rd payout year, she’ll receive an annuity of Rs. 1,10,000 (1,05,000 + 5% of 1,00,000). And so on.

With this option, you can add your spouse under the same Annuity Plan. If you buy a plan with this option, you’ll be the primary annuitant, and your spouse will be the secondary annuitant.

In case you (the primary annuitant) pass away, the insurer will continue paying the annuity to your spouse (the secondary annuitant). They may either be paid 100% or 50% of the annuity amount, depending on the product.

For example, Lalit, 40, wants to save for his as well as his wife’s post-retirement life. So, he decides to buy an Annuity Plan with the Joint Life Annuity Option - where the insurer will pay 100% of the annuity amount to the secondary annuitant after the primary annuitant passes away.

Let’s assume Lalit decides to invest an amount of Rs. 1 Lakh (without tax) annually for a period of 20 years. He plans to retire at the age of 60. Hence, he chooses to receive the annuity immediately after retirement - and he chooses to receive the annuity for as long as he lives.

So, the insurance company will start paying the annuity after Lalit reaches the age of 60. Let’s say Lalit passes away at the age of 75 years. In this case, the insurer will continue paying the same annuity every year to Lalit’s wife for as long as she lives.

As you can see, there are multiple customisation options available under a General Annuity Plan. You can customise for how long, and how frequently you want to pay them. You can configure when and how frequently you want to receive the annuity payout. You also have the option of increasing the annuity you receive every year. And, last but not least, you can add your spouse to the Annuity Plan too.

Wondering about how Single-Premium Annuity Plans can be customised? We have you covered - in the next article!