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Everything You Need to Know about Guaranteed Income Plans
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.
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What is a Guaranteed Income Plan?
What is a Guaranteed Income Plan?
- 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.
How Does a Guaranteed Income Plan Work?
Here is how a basic Guaranteed Income Plan works:
Premium Payment Terms
You pay a premium as per the agreed terms on amount, frequency, and tenure.
Life Insurance Coverage
The policy provides you life insurance coverage for the policy tenure. In case of your unfortunate demise, this amount is paid to your nominee.
Survival Benefits
If you survive the policy term, you get the survival benefits as in your policy.
Customisation with Riders
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.
Features and Benefits of a Guaranteed Income Plan
The most common features and benefits of a Guaranteed Income Plan are as follows:
Guaranteed Income
Guaranteed Income Plans provide a predetermined and guaranteed income benefit to the policyholder. This income is fixed, regardless of market fluctuations, hence ensuring a stable and predictable source of income.
Premium Payment Options
Policyholders can choose from various premium payment options, including single, limited, or regular premium plans. They can also choose different premium payment terms based on their financial preferences and capacity.
Payout Frequencies
Guaranteed Income Plans offer flexibility in choosing the frequency of income payouts, which can be regular or at specified periods. In some cases, you can also select your income payout in a lumpsum form, thus aligning with your needs.
Survival Benefit
Guaranteed income plans offer two types of survival benefits: income and terminal. The income benefit is a fixed, regular payout that begins after the premium payment term and continues through the income period. The terminal benefit is a lump sum amount paid at the end of the policy term, upon maturity.
Death Benefit
If the insured passes away during the policy term, the nominee receives a death benefit, either as a lump sum or regular income, based on the policyholder’s choice. Some plans also continue paying guaranteed income if death occurs during the income period. The death benefit is usually the higher of 10 times the annual premium or 105% of total premiums paid.
Policy Continuity
Some Guaranteed Income Plans also provide a policy continuity benefit wherein if the insured passes away during the income period, the policy continues, and the nominee keeps receiving the income payouts in addition to the death benefit already paid.
Tax Benefits
The life insurance premium is eligible for deduction u/s 80C, and the sum received on maturity will be exempt u/s 10(10d). However, tax benefits are available subject to conditions/limits specified in prevailing tax laws.
Surrender Value
In a Guaranteed Income plan, the surrender value is the amount you receive if you decide to terminate your policy before its maturity. This value is typically available after you have completed the first year of your term and paid all the premiums for that year. If you cannot continue your policy for any reason, the surrender value ensures you get back a portion of the premiums paid.
Riders for Enhanced Coverage
Riders are the additional benefits that can be attached to the base policy to enhance its coverage. They provide specific protections and can customise the plan as per the policyholder’s requirements. Critical illness rider, accidental death rider, and waiver of premium rider are a few examples of such riders.
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Riders Available with Guaranteed Income Plan
While the availability of riders may vary across insurers and specific products, some of the most common riders that might be available with guaranteed income plans are:
Accidental Death Rider
An accidental death benefit rider provides an additional payout if the policyholder's death occurs due to an accident. Thus, it covers the additional financial burden that an accidental death brings.
Critical Illness Rider
This rider offers a lump-sum payment if the policyholder is diagnosed with a covered critical illness, such as cancer, heart attack, or stroke. It can help cover medical expenses and loss of income during such critical times of illness.
Waiver of Premium Rider
With this rider, if the policyholder becomes unable to pay premiums due to a serious issue like disability or terminal illness, the insurance company waives future premium payments, ensuring that the policy remains in force and the guaranteed income benefit continues.
Income Benefit on Accidental Disability Rider
This rider provides an additional income benefit on top of the guaranteed income in the event of some unforeseen situations like the policyholder's illness or injury that impairs their earning ability, and ensures that your family's financial situation remains protected even in such cases.
Factors to Consider Before Buying a Guaranteed Income Plan
Factors to Consider Before Buying a Guaranteed Income Plan
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 once you have completed one year of the term and paid all the premiums for that year.
You can also borrow against these policies in case of unforeseen financial emergencies. Assess how much liquidity your plan can provide when needed and choose your plan accordingly.
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Interesting Digit Life Stories and Milestones from FY’25
1. Record-Breaking Days
Talk about a busy day! We issued over 1.7 lakh policies on September 28, 2024. Our systems were operational even at late hours, issuing over 1,100 policies at 1:08 AM on December 7, 2024.
2. Our Growing Family
The average age for people joining the Digit Life insurance family in FY24-25 was 34 years old, a slight nudge up from 33 years previously.
3. Premium Extremes
Talk about range! We saw an annual premium as high as ₹35 lakh for our Digit Icon product, while we also issued policies for as little as ₹143 for a 2-year Digit Life Group Micro Term Insurance
4. More Women Protected
We saw a 1.2% increase in female lives covered this FY, with women now making up 49.89% of our total covered lives, up from 48.77% last year
5. Flexible Premiums
We've got options! Some folks opted for monthly premiums as low as ₹50 per month, while others chose the monthly premium category for a policy with an annual premium of ₹2.3 lakh (roughly ₹19,000/month).
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FAQs About Guaranteed Income Plan
What happens in case I am unable to pay my premiums for the policy?
In case of premium discontinuance, after the policy has acquired a surrender value, which happens after you have completed the first year of your term and paid all the premiums for that year, the policy continues as a ‘paid up’ policy with reduced benefits.
However, if the premium payment is discontinued even before the policy has acquired a surrender value, no benefits will be paid, and the policy will lapse.
Can I take a loan against my guaranteed income policy?
Who Should Buy a Guaranteed Income Plan?
A guaranteed income plan is ideal for you if:
- You want to create an additional stream of fixed income.
- You want some guaranteed returns as opposed to the market volatile investments.
- You are looking for tax benefits on your investment.
- You have some long-term goals planned that require regular stream of income like post-retirement years.
Can I rely solely on a Guaranteed Income Plan for financial security?
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