Kotak Life Insurance Plan - Life Insurance Policies in India
Close
Close

Buy a life insurance plan in a few clicks

Now you can buy life insurance plans completely online right here.

  • Icon for Kotak Preferred e-Term Plan

    Kotak e-Term Plan

    Kotak e-Term Plan is a pure term plan that provides a high level of protection to your loved ones in your absence.

  • Icon for Kotak Preferred e-Term Plan

    Kotak Health Shield

    The Kotak Health Shield Plan helps secure your finances in times of sudden medical expenses related to illness such as Cardiac, Liver, Neuro and Cancer (all early and major stages of illness /conditions of Cancer); along with offering protection for Personal Accident - in case of accidental death or disability.

  • Icon for Kotak Preferred e-Term Plan

    Kotak Lifetime Income Plan

    Kotak Lifetime Income Plan gives you the assurance of your income continuing throughout your life and in your absence throughout the lifetime of your spouse!

Close

Get a Call

Enter your contact details below and we will get in touch with you at the earliest.

  • Select your Query

Thank you

Our representative will get in touch with you at the earliest.

Back

Pros and Cons of Retirement Annuities

  • 21st Dec 2021
  • 46

View Plans Pros and Cons of Retirement Annuities

The primary objective of any retirement planning instrument is to provide stable and risk-free returns in your golden years. An Annuity plan is one such instrument where the insured pays a lump sum to the insurer in return for a regular income or pension after retirement. But are they the right choice for retirement planning? Let’s wade through the pros and cons to find out. 

Pros and Cons of Retirement Annuities

The primary objective of any retirement planning instrument is to provide stable and risk-free returns in your golden years. An Annuity plan is one such instrument where the insured pays a lump sum to the insurer in return for a regular income or pension after retirement. But are they the right choice for retirement planning? Let’s wade through the pros and cons to find out. 

Pros of Annuities

The following are the advantages of choosing an annuity plan for your retirement.

1.Safety of Capital

Annuity plans are non-linked. So, they are entirely unaffected by the volatilities in the share market. Thus, the money invested in the annuities and the subsequent returns are completely risk-free. 

2.Guarantee of Fixed income for a Longer Duration

Annuity plans provide a guaranteed income after retirement. While other investment options, such as fixed deposits, do the same, you must renew your deposits every year. And if the bank interest rates fall due to economic or other changes, you may get lower returns on your capital on every renewal. This can lead to faster erosion of your capital and depleting your pension. 

With annuities, however, you don’t have to renew your investments. The rate of interest remains fixed. Therefore, once you buy an annuity, you will immediately know the time, frequency, and amount of pay-out that you will get on retirement. These parameters will remain unchanged.

Hence, you are guaranteed to have a fixed and stable source of income after retirement. This, in turn, can help you in having a clear picture of your finances and how to manage different expenses during your golden years.

3.Multiple Options of Investment

You can buy either an immediate annuity plan or a deferred annuity plan depending upon your retirement goals. In an immediate plan, your pension starts almost immediately after you buy the plan. In a deferred annuity, you can determine the deferment period from 1 to 10 years. Your pension begins on completion of the deferment period.

There are multiple sub-options to choose from within these two options, giving the insured a wide range of choices. Similarly, you also have a choice when it comes to getting your income after retirement. 

The Cons of Annuities

.While annuities can provide a substantial advantage, as discussed earlier, they do have their share of disadvantages that you should be aware of. 

1. Lower Interest Rates and Capital Appreciation

This is a compromise you make for prioritising safety. The annuities pay relatively lower interest rates on the invested amount. Also, they are generally non-participating in nature. Thus, you do not get the share of the profits of the insurance firm. Moreover, as the money is not invested in the stock market, your investments will have significantly lesser capital appreciation chances.

2.Low Liquidity

Once invested, you are not allowed to withdraw the principal amount or surrender the plan prematurely. So, it would help if you stayed invested till your retirement.

3.No Income Tax Relief

The pay-outs received from annuities are taxable as per the various income tax slabs for the individual taxpayer. Therefore, you can’t claim any tax relief on annuities. 

So, Are Annuities Good for Retirement? 

Absolutely, yes. While they have their share of pros and cons, just like any other investment instrument, they can provide the much-needed financial support in the retirement years. However, it is essential to not rely on annuities for your retirement planning solely. Instead, build a robust portfolio that contains a healthy mix of investment, insurance and savings to ensure you never run dry in your golden years. 

- A Consumer Education Initiative series by Kotak Life

Tags

Also read

    • 30th Nov 2021
    • 59

    Do Pension Plans Allow any Death Benefits?

    When you die your spouse, civil partner or beneficiaries may be able to access your pension. Click here to find out more.

    Read more
    • 21st Sep 2021
    • 193

    Which Pension Plan Suits You best?

    A pension plan is a type of fund where a portion of your pay is invested during your employment tenure. Click here to know which pension plan suits yo...

    Read more
    • 30th Nov 2021
    • 52

    The Significance of Number 8,000 in Retirement Planning

    If we think practically, you’ll realize that retirement is not as brief as we generally believe. Read this post for an innovative take on retirement...

    Read more

Related Plans

  • Kotak e-Term Plan - Online Term Insurance

    Kotak e-Term Plan - Online Term Insurance

    Kotak e-Term Plan is a pure term insurance plan that provides a holistic life protection at affordable prices. Find out the eligibility criteria, key ...

    Know more
  • Kotak Premier Life Plan

    Kotak Premier Life Plan

    Kotak Premier Life Plan is a limited premium paying participating whole life plan, where you can choose to receive bonus payouts even after premium pa...

    Know more
  • Kotak Group Secure One

    Kotak Group Secure One

    Kotak Group Secure One provides a comprehensive protection solution to enable your team members to protect their loved ones in the unfortunate event o...

    Know more
  • Kotak Superannuation Group Plan – II

    Kotak Superannuation Group Plan – II

    Kotak Superannuation Group Plan – II lets you help your employees in their retirement planning while they are earning sufficiently.

    Know more