Should you buy Guaranteed Income Plans from Life Insurance companies? Check Pros and Cons
The only con of guarantee income plans from Life Insurance is the overall return of the product is usually lower than its counterparts.
That is mainly because of the insurance portion in-built into the plan.
Personal finance experts suggest that one should see insurance as a protection tool and not as an investment option.
However, several policies promise guarantee income over a period of time.
Create a whole lot of confusion in the minds of buyers.
Whether to see life insurance as an investment or just as the name suggests, i.e. insurance.
Another question that troubles buyers is:
Whether they should buy a policy that is offering guaranteed income?
The very purpose of a Life Insurance Plan in anyone’s life is to provide protection.
However, some have savings-orient goals couple with guarantee payouts complimenting their protection goals.
This is where Guaranteed Income Plans from Life Insurance companies play a role.
Guaranteed Income Plans have a predefine schedule.
A specify amount that is pay to the policyholder if he survives the mention tenure.
These incomes can be pay annually, quarterly, half-yearly, or monthly.
The amount of income under such plans is fixed and is expressed either as a percentage of the sum assured or the annualized premium.
FE Online in an email interaction that the income pay-out under guaranteed income plans starts at either of the following instances:
- The premium payment term if the policy is a limit premium policy.
- Maturity, for a fixed number of years.
- Death, either for a fix number of years or up to the end of the policy tenure.
What role Guaranteed Income Plan can play in one’s overall financial plan
If an individual needs a guaranteed and regular source of income.
Guaranteed income plans can prove beneficial.
As far as financial planning is concern.
Guaranteed income plans can prove worthwhile for people nearing retirement who would like to receive.
A guaranteed and secure source of income post-retirement.
Moreover, for individuals looking to supplement their incomes.
Guaranteed income plans can be helpful.
It is believe that one should not see insurance as an instrument of income.
Rather one should see insurance as insurance only.
So, is it right to mix insurance and income through such guaranteed income plans?
Guaranteed income plans are available in the market.
People must know their features and aspects before they buy the plan.
If an individual’s requirement aligns with guaranteed income plans then they can invest in such plan.
Create a secured corpus for their needs.
There are various types of insurance products to meet the different needs of consumers
There were traditional insurance plans with an element of savings offer in the market for ages.
However, now with more private players in the market.
The consumers have a larger bouquet of products with higher returns to choose from.
If an individual’s requirement aligns with guaranteed income plans then can surely invest in such plans to create a secured corpus for the future.
Who should buy a guaranteed income plan?
The suitability of guaranteed income plans depends on an individual’s needs, risk appetite, financial goals, and investment horizon.”
Such plans may prove suitable for individuals who –
- Have a medium to long-term investment horizon
- Are completely averse to market risks
- Create a guaranteed corpus
- Avail of insurance coverage on their investments
- A stream of guaranteed incomes for their needs
Options other than guaranteed income plans
If your primary aim is to generate a fixed wealth or income.
Then there are several other options that you can look into.
Some of these are:
Public Provident Fund, fixed deposits, post-office deposit schemes, recurring deposits, National Saving Certificates, etc.
These savings schemes do not promise insurance coverage.
Which is available under guaranteed income plans.
Pros and cons of guaranteed income plan
Some of the benefits offered by Guaranteed Income Plans are:
First, the benefits that you earn from the plan are guaranteed.
There is no exposure to market volatility ensuring that you get a fix rate of income even when the markets are volatile or bearish.
This may be helpful for risk-averse investors who look to avoid market risks.
Want a secure avenue for their investments.
Guaranteed income plans secure a source of additional income.
This is helpful if you need supplemental income in meeting your expenses or if you want a regular stream of income after a specified age.
The incomes can use to pay the premium of the policy, partially or fully, making premium payments easy and affordable.
If the income is paid after death, the plan ensures that your family is financially secured even in your absence.
Lastly, the tax angle cannot be ignore.
The premiums pay as well as the incomes that you receive are tax-free subject to certain terms and conditions.
As such, you can plan your taxes effectively and even create a tax-free corpus with the plan.
The only con of guaranteed income plans is the overall return of the product is usually lower than its counterparts but that is mainly because of the insurance portion in-built into the plan.
Thus, an individual would have to factor the insurance portion in, while comparing returns.
In life insurance, the guaranteed return is the minimum sum that the policyholder or nominee receives when they reach the age of maturity.
In other words, outlive the life insurance policy tenure.
A policy buyer who wants to buy investment plans in India should look at the amount of the guaranteed returns on the plans they are going through.
The higher guaranteed returns sum is far likely to secure your family’s future than highly volatile assured returns.