Life Insurance Corp.’s Jeevan Shanti policy is a single premium plan wherein the policyholder has an option to choose an immediate or deferred annuity. An annuity is a fixed sum of money paid to someone each year, and this is done typically for the rest of their life. Annuities are preferred by those investors who want a fixed sum of money for life. Unlike fixed deposit products whose interest rates are fixed only for a said tenure, annuity gives you ‘shanti’ from any tension about variable returns. Let us find out more about this policy.
Basic details – Jeevan Shanti offers an immediate or deferred annuity. These annuity rates are guaranteed at the inception of the policy for both options. The annuities are payable throughout the lifetime of annuitant(s) i.e. person(s) who receive the annuity.
Where to purchase – This plan can be purchased offline as well as online. To purchase the plan online, please log on to LIC website.
Benefits – The simple and straightforward benefit of this policy is one can make a one-time investment and get guaranteed life-long income. There are as many as nine different annuity options to choose from. There is a facility to choose either immediate annuity or postpone it to a future date as a deferred annuity. Do remember there are guaranteed additions during the deferment period.
Is this unique policy – No. Annuity policies are offered by many private sector life insurance organizations also. However, there are small differences between the competing offerings.
Deferment period – One year is minimum deferment period. Twenty years is the maximum deferment period. So, the minimum vesting age is 31 years (completed) and maximum vesting age is 80 years (completed).
Who can take – This policy can be taken on own life or as joint life with grandparent, parent, children, grandchildren, spouse or siblings. There is also an option to take the plan for the benefit of handicapped dependent (Divyangjan) life. In case of annuity taken for joint life, one can do between any lineal descendant/ascendant of a family (i.e. Grandparent, Parent, Children, Grandchildren) or spouse or siblings.
Death benefit – This is applicable only in case of the deferred annuity. It is higher of the purchase price plus accrued guaranteed additions minus total annuity payments made till the date of death, or 110% of purchase price.
Options – As said before, there are many options to take your annuity. This choice is extremely important. Because once you make it, it cant be changed.
There are nine options available under Immediate Annuity. They is Option A (Immediate Annuity for life), Option B (Immediate Annuity with guaranteed period of 5 years and life thereafter), Option C (Immediate Annuity with guaranteed period of 10 years and life thereafter), Option D (Immediate Annuity with guaranteed period of 15 years and life thereafter), Option E (Immediate Annuity with guaranteed period of 20 years and life thereafter), Option F (Immediate Annuity for life with return of Purchase Price), Option G (Immediate Annuity for life increasing at a simple rate of 3% p.a.), Option H (Joint Life Immediate Annuity for life with a provision for 50% of the annuity to the Secondary Annuitant on death of the Primary Annuitant), Option I (Joint Life Immediate Annuity for life with a provision for 100% of the annuity payable as long as one of the Annuitant survives), and Option J (Joint Life Immediate Annuity for life with a provision for 100% of the annuity payable as long as one of the Annuitant survives and return of Purchase Price on death of the last survivor).
Loan facility – The loan facility in this policy is available after completion of one policy year.
Surrender allowed – The policy can be surrendered at anytime after three months from the completion of policy when the annuity option is with the return of purchase price.
Free look period: If the policyholder is not satisfied with the policy, the policy can be returned to LIC within 15 days.
Policy purchase price: The minimum purchase price is Rs 1,50,000 subject to minimum annuity rules. There is no maximum purchase price limit. Do note that a lower purchase price may be allowed in specific cases such as NPS (National Pension System subscriber) or if this plan is purchased for the benefit of Divyangjan. But in the case of NPS, annuity rates may be different.
Minimum age at entry: It should be 30 years (completed).
Minimum annuity – The minimum amount would range between Rs 1,000 (per month) to Rs 12,000 (per year).
Sample illustration – LIC has provided the following illustration. Imagine a 45-year old person has bought the policy for a purchase price of Rs 10 lakh (excluding applicable taxes). He has opted for yearly annuity mode. The deferment period chosen is 20 years. The deferred annuity would be Rs 2.06 lakh for single life and Rs 2.27 lakh for joint life.
If the person opts for the immediate annuity, they can get anywhere between Rs 56,200 to Rs 74,300 depending on the option chosen by them.
RupeeIQ view – Annuity products are for those who would like to protect themselves from interest-rate risk for their lifetime. Yet, there is a cost for this life-time guarantee. Firstly, the annuity income is taxed under the income tax rate. Secondly, the insurance company pays lower than bank FD rates. Thirdly, there is no liquidity for annuity product.
Having said all this, today annuity plans can be bought cheaper online. LIC Jeevan Shanti offers a rebate of 2% by way of increase in the annuity rate which shall be applicable for policies sold online, NPS subscribers and QROPS (Qualifying Recognised Overseas Pension Scheme). Plus, there is an incentive for a higher purchase price by way of an increase in the annuity rate. Anybody buying this annuity plan should look at the tax adjusted income they will generate. You should also carefully choose the options, which offer annuity single life or joint life.