Everything about a Guaranteed Income Plan you should know

In the world of financial planning, while investors look to multiply their wealth, they also look for predictability and assurance for their future financial goals.

Guaranteed Income Plans are those financial solutions with multiple benefits, including assured returns, that can be an answer to a secured retirement planning or shielding your family financially.

Guaranteed Income Plans are the traditional insurance plans that provide the dual benefit of financial protection along with the assurance of a guaranteed income stream.

They are a safe investment option wherein you get life coverage and guaranteed regular payouts for a specified period or for a lifetime.

Isn’t it a significant relief to get an assurance that your family will be financially secure even in your absence or knowing that your retirement years would be stress-free with regular income.

Guaranteed Income Plans are designed to shield individuals from market volatility, providing a regular and stable income source during non-earning years, especially post-retirement. Their flexibility in terms of premium payment and income payout options makes them a popular choice for those seeking financial stability and peace of mind in their post-retirement years.

Here is how a basic Guaranteed Income Plan works:

• You pay a premium as per the agreed terms on amount, frequency, and tenure.
• The policy provides you life insurance coverage for the policy tenure. In case of your unfortunate demise, this amount is paid to your nominee.
• If you survive the policy term, you get the survival benefits as in your policy.
• You can also add the available riders to customise the policy as per your requirements and get an extra layer of security with enhanced benefits.

1. Guaranteed Income

2. Premium Payment Options

3. Payout Frequencies

Survival Benefit

Survival Benefit in guaranteed income plans is of two types: Income benefit and terminal benefit.

• Income benefit is the guaranteed regular income paid during the income period after the premium payment term ends.
• Terminal Benefit is the lumpsum amount paid on maturity after the policy term is over.

5. Death Benefit

In case of the unfortunate demise of the insured during the policy tenure, the nominee receives a death benefit that depends on the premium paid and the policy tenure chosen. The payment of death benefit can be lumpsum or in income form as chosen by the policyholder at the inception of the policy.

Some plans also provide an option of policy continuity if the death occurs during the income period. In such a case, the policy continues after the death benefit payment, and income benefits are paid as guaranteed.

Usually, the death benefit is the highest of:

• 10X of Annualised Premium
• 105% of total premiums paid.

6. Policy Continuity

7. Tax Benefits

8. Surrender Value

Guaranteed Income Plans attain a surrender value after the premium is paid for two years.

After paying the first two full-year premiums, if you cannot continue your policy for any reason, you receive a surrender value of the policy.

However, in case of single premium policies, this period is lesser, and you can surrender the policy usually after the completion of the first year.

Here, the surrender value is of two kinds: Guaranteed Surrender Value and Special Surrender Value. The policyholder is paid the higher of the two.

9. Riders for Enhanced Coverage

1. Accidental Death Rider

2. Critical Illness Rider

3. Waiver of Premium Rider

4. Income Benefit on Accidental Disability Rider

Before investing in a Guaranteed Income Plan, you must consider a few factors to ensure your investment aligns with your goals.

Here are 6 major factors to consider and steps to take:

1. Determine your Financial Goals

The foremost and most important step before buying a guaranteed income plan is to assess your short-and long-term financial objectives.

What are you looking for, is it about a regular income stream post-retirement, financial security for your family in case of your absence or both?

Getting a clear picture of your goals will help you choose the most suitable plan that is aligned with your requirements.

2. Check the Liquidity in your Policy

Guaranteed Income Plans usually don’t have the option of partial withdrawals. However, they start their income option after a specified period. They also provide a surrender value after the payment of a two-year premium.

You can also take a loan against these policies in case of unforeseen financial emergencies. Assess how much liquidity your plan can provide when needed and choose your plan accordingly.

3. Check the Rider Options

4. Research About the Insurance Provider

Before finalising your investment, conduct thorough research on the insurance provider’s track record, the policy’s previous record on the percentage of returns paid, claim settlement history, solvency ratio, claim process and customer reviews.

A reliable, financially strong company, especially one that is more digital process-oriented, is more likely to honour your policy commitments hassle-free and provide excellent customer service.

5. Check for Additional Benefits like Terminal Benefits

6. Check for Flexibility in Premium Payment Terms

Different plans offer varying premium payment terms, such as single premium, limited premium, or regular premium options. Choose a plan that aligns with your income and financial stability. Flexibility in premium payment terms can help you manage your policy more effectively.

Whether you're planning for retirement, securing your family's future, or seeking a reliable source of income, a Guaranteed Income Plan offers you that shield against economic volatility, thus remaining your reliable companion on your journey towards a more predictable and prosperous future.