Life Annuity

A life annuity is a retirement plan that gives you a fixed monthly income for the rest of your life, in return for a one-time lump sum or regular payments. For example, if you have invested a lump sum amount of ₹10,00,000, you will receive ₹6000 per month for the rest of your life, even when you do not have regular income. 

It has two phases: accumulation and distribution. In the accumulation phase, you invest a lump sum amount or start to pay regular premiums to an insurance company. In exchange, during the distribution phase, your insurer provides regular payouts for life. You can choose the payout frequencies on a monthly, quarterly or annual basis. 

Unlike mutual funds or fixed deposits, a life annuity offers guaranteed payouts for life, not just until your money runs out. Moreover, the Regulatory Authority has mandated insurance companies to maintain efficiency and liabilities when it comes to updated annuity rates. This makes annuity investments a safe, long-term savings plan.  

Types of Life Annuities - You Can Choose

There are multiple types of life annuities. Depending on the type you choose, the payout structure and death benefits can vary. Below are the key types explained with simple examples:

• Single Life Annuity

This plan is suitable for individuals who do not have any dependents. It provides the annuitant with a fixed, regular income for life. After the annuitant's death, payouts stop and are not transferred to any nominee.

Example: Mrs. Rawat, a 50-year-old widow, purchases this plan for robust retirement planning. She has contributed to a pension plan with ₹1 Lakh annually for 10 years until her retirement at 60 and expects payouts worth ₹30,000**** to continue for the rest of her life. At the time of the annuitant’s demise, the payouts stop. 

• Joint Life Annuity

Perfect for couples, this plan ensures that even after the death of one spouse, payouts continue to the surviving spouse for life. Compared to a single life annuity, payouts are usually lower since they are made for a longer duration.

For example, a 40-year-old Mr. Upal purchases this plan with a lump sum investment of ₹50 Lakh. He expects the annuity to cover both him and his spouse for the rest of their lives after retiring. Unfortunately, if the annuitant passes away after 10 years of the distribution phase, the rest of the payout amount will be offered to the spouse as long as she lives. 

• Increasing Annuity

If an individual purchases this annuity life plan, the payout amount will keep increasing annually. The increasing percentage can vary from one insurer to another. It is most suitable for those who want to factor in inflation in their retirement planning. 

For example, Mrs. Ghoshal, a 50-year-old teacher, wants to secure her daughter’s education. She starts to pay a premium of ₹8 Lakh annually for 10 years. She wants the distribution phase of the plan to start when she turns 60. Her monthly payouts will start with ₹42,000, which will increase 3% annually****.

• Term Certain Annuity

This plan provides income for a fixed term (e.g., 10 or 15 years). If the annuitant passes away during the term, the nominee receives the remaining payouts. If the term ends while the annuitant is alive, payments stop. 

• Life Annuity with Return of Purchase Price

This option provides lifetime income to the annuitant and returns the original investment amount to the nominee upon their death. It is ideal for those who want to secure both income and legacy. 

For example, Mr. Sharma has invested ₹30****Lakh in a life annuity with a return of purchase price option. As per the plan, he will receive approximately ₹20K**** per month for the rest of his life. In case of his untimely demise, his nominee will receive the purchase price, which was ₹30****Lakh. 

Why Choose a Life Annuity?

The following are the benefits of choosing a life annuity for retirement planning:

• Guarantees Income for Life

Life annuity plans ensure a steady income flow to retired individuals so that they can enjoy a stress-free retirement. Moreover, with the right life annuity plan, such as a joint annuity or an increasing annuity, they ensure that their family members are financially independent even during their absence.  

• Protects from Outliving Savings

Irrespective of your life expectancy, a life annuity guarantees a steady income stream. Therefore, you do not have to worry about running out of money or outliving your savings.  

• Safeguards from Inflation

Although all types of life annuities do not offer an inflation safeguard, increasing annuity plans allow an annuitant to receive payouts that increase annually. The percentage of this increment depends on the plan specifications. 

• Provides Tax Benefits

According to the Income Tax Act 19611 Section 80C, the premium amount paid towards a life annuity plan is eligible for tax deductions up to ₹1.5 Lakh each financial year. 

• Different Payout Options

Life annuity plans enable annuitants the flexibility to choose the frequency of the payouts. They can opt for monthly, quarterly, or annual payouts.  

• No Risk of Market Volatility

No market risks make life annuity plans a popular long-term investment choice even for those who have a lower risk appetite. That way, these plans ensure a peaceful retirement.  

HDFC Life’s Life Annuity Plans & Their Features

HDFC Life’s life annuity plans not only promise a comfortable retirement, but also help you to stay aligned with your financial goals in the long run. All these plans are designed to cover your exclusive requirements and offer the flexibility to choose the payout frequencies. 

The following are some of the best life annuity plans in India:    

1. HDFC Life Smart Pension Plus

It is a Non-Linked, Non-Participating Individual/Group Annuity Savings Plan, pension plan that guarantees a steady income for life in exchange for a single or limited period payment term.

 Features include: 

• It covers both single and joint life.
• A single life plan offers both immediate annuity and deferred annuity.
• 4 annuities to choose from: life annuity, life annuity with early return, increasing annuity, and life annuity with return of % of the total premium paid.
• The minimum amount for single pay under this plan is ₹50,000, and for limited pay, it is ₹30,000 annually.
• No limit on maximum premium amount.
• The minimum annual annuity amount is ₹12,000, and no limit on the maximum annuity.

2. HDFC Life Pension Guaranteed Plan

It is a single premium non-participating and non-linked annuity plan that offers both single and joint life cover. 

Features include:

• Flexibility to choose both the purchase price and the annuity amount.
• Through the top-up option, the annuitant can increase the annuity payout amount.
• Annuitants can take loans under this life annuity plan.
• The minimum premium amount yearly is ₹12,000.
• Minimum purchase price for immediate life annuity is ₹42,076.

3. HDFC Life Systematic Retirement Plan

This is an An Individual/ Group, Non-Participating, Non linked, Savings Deferred Annuity Plan. This non-participating and non-linked plan offers a death benefit of 105% of the premium paid if the annuitant dies during the deferment period. 

Features include:

• 2 annuity options to choose from: life annuity and life annuity with return of premiums.
• Offers flexibility to choose a deferment period.
• Assists in building a retirement corpus.
• The minimum premium amount yearly is ₹30,000.
• The minimum annuity payment amount is  ₹12,000 annually.

How to Calculate Your Life Annuity Income?

Understanding your expected monthly income from a life annuity is key to planning a financially secure retirement. Your payout depends on factors like:

• Age - older buyers get higher payouts
• Gender - women may receive slightly lower payouts due to longer life expectancy
• Investment amount
• Payout frequency - monthly, quarterly
• Type of annuity selected - such as single life, joint life, return of purchase price

For instance, if you invest ₹10 Lakh in a single life annuity at age 60 with monthly payouts, you could receive around ₹6,000 per month for life.

You can also use the HDFC Life Annuity Calculator to get accurate, personalised estimates and compare plan illustrations with ease. Here are the steps to follow:

Step 1: Click here to go to our annuity calculator page

Step 2: Fill in personal details like your name, DOB, email ID, and mobile number 

Step 3: Specify the rate of return and the monthly investment amount (e.g., 6% at age 45, ₹20,000 for 15 years)

Step 4: Mention the percentage of the corpus allocated for pension and the expected return rate

Step 5: Get the details of your pension calculation

Who is Eligible for a Life Annuity?

Life annuity is perfect for retirees and individuals who want to maintain their current lifestyle with a steady income in the future. Here is a plan-wise breakdown of eligibility for life annuity plans offered by HDFC Life: 

Pros and Cons of Life Annuity

Life annuities are ideal for those seeking guaranteed income and financial stability in retirement plans. However, like any investment product, they come with both advantages and limitations. 

Here is a quick comparison to help you decide if a life annuity suits your retirement goals:

It is important to understand that a life annuity works best for risk-averse individuals who prioritise stable income over high returns.

Summary

So, in a nutshell, if your financial goal is to earn a stable income during retirement, a life annuity is a great choice. The freedom from market volatility, guaranteed lifelong steady income and tax benefits make these plans ideal for anyone looking for a peaceful and stress-free retirement. However, considering the factors of inflation, the number of dependents in your family, and your risk appetite is crucial, as those factors will help you to choose the right option.