All About Guaranteed Income Plans
Published On Mar 03, 2021, Updated On Apr 22, 2021
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Today, for most people, preserving financial stability has become very difficult. The insurance firms have come up with guaranteed income policies, recognizing the necessity of financial stability in the life of a person. The guaranteed income plans are primarily tailored to meet the needs of risk-averse investors and provide them with life insurance benefits, maturity benefits, and regular guaranteed payouts.
The guaranteed income plan offers financial security by providing regular income at a pre-defined percentage of the sum assured. The USP of the plan is that one can receive the income yearly, half-yearly, quarterly, or monthly. This innovative insurance product is a traditional plan that comes with a bonus facility, where the insurance holders are not required to worry about the ups and downs of the market; rather they get to enjoy the maximized returns.
Features of Guaranteed Income Plans
The guaranteed income plan is a standard general plan that offers insurance benefits in the form of annual payouts, along with guaranteed profits. The income is secured and the payout frequency may be chosen by the policyholder. The basic features of this plan are as follows
- For salaried adults who fall within the age range of 18-60 years, the policy term for them varies from 10-30 years.
- It is a type of life insurance contract that provides monthly income for a defined period ranging from 10-30 years.
- Provides at the date of maturity, vested reversionary bonus/terminal bonus, if any.
- Provides benefits for death as well as benefits for maturity.
- Provides the value of being free from tax.
- Terms of strategy range from 10-30 years.
Benefits of Guaranteed Income Plans
Guaranteed income plans appeal to risk-averse investors by offering life insurance along with maturity benefits together with guaranteed payouts regularly. Some of the benefits of a guaranteed plan are listed below:
1. Maturity Benefit
The life insured earns the basic reversionary bonus together with the terminal bonus, if any, at the time of maturity. If the payout duration is nearly 15 years, so the regular amount is paid to the insured, which is a predefined proportion of the amount insured.
2. Death Benefit
The nominee/beneficiary of the policy receives the basic amount guaranteed together with the reversionary/terminal bonuses, if any, in the case of an unfortunate event of the insured's death during the premium paid period. And, for the next 15 years, or as stated in the policy, the payouts are carried out. The nominee/beneficiary earns the total guaranteed amount along with the other benefits in the event of the insured's death during the premium paid term or the payout period. There are different ways in which death payouts are paid. They are discussed as below:
A. In case the life assured dies during the policy term, the beneficiary will be eligible to receive the Sum Assured payout options as a lump sum, monthly income or a combination of both. The Sum Assured on Death is higher of-
B.The Surrender Benefit varies according to the plan variant chosen by the policyholder at the time of inception-
Life Option - The Surrender Benefit will be available in the 1st policy year in case of Single Premium policies. In case of Limited Pay policies, the Surrender Benefit will be available after all premium payments that are due under the chosen Premium Payment Term. Premium Payment Term option, and Surrender Value Payable
Single Premium/ Limited Pay
A x Total Premiums Paid x [Unexpired Term/ Policy term]
No Surrender Value is payable Here, factor A is subject to vary according to the Premium Payment Term option as well as policy year of the surrender. Unexpired Term is the total number of outstanding policy years.
Life with Return of Premium option, and Life Plus option- The Surrender Value payable will be higher of Guaranteed Surrender Value (GSV) or Special Surrender Value (SSV). GSV and SSV are acquired only after the payment of premiums of at least 2 consecutive policy years have been cleared. GSV is determined based on the defined percentage of the Total Premiums Paid. And SSV is determined by the company
3. Income Tax Benefit
The tax deduction (premium amount) referred to in Section 80(C) shall be made available on an annual basis and the tax exemption referred to in Section 10(10) (maturity benefits) shall be made available on maturity proceeds, according to the terms and conditions.
4. Riders or Add-Ons
This plan comes with an add-on or riders such as an ‘accidental death benefit rider’.
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Therefore, a guaranteed income plan should be perceived as a conventional non-linked plan that provides advantages that are secure, not linked to/guaranteed by market results. It is a perfect insurance tool for people who are looking forward to creating and maintaining a substantial corpus, as well as for those who wish to earn regular income over a period of time, in the frequency selected. After term completion, the corpus produced can then be connected to market-driven fund options