Annuity plansTata AIA Life Insurance Co. Ltd. has launched Tata AIA Life Insurance Smart Annuity Plan. This annuity plan offers guaranteed lifetime income at competitive rates to help manage expenses post-retirement. Unlike some other annuity plans, the entry age of Tata AIA Life Insurance Smart Annuity Plan has been kept at a minimum of 45 years. RupeeIQ decodes the latest annuity product and helps you decide how good an investment this is.

What are annuity plans

Any market linked investment exposes the investor to volatile returns. Even so-called fixed returns are known to drop over the long-term. Empirical evidence shows that in India, 10-year bond yields have fallen by approximately 6.5% since 1996 (14% to the current 7.5%). In most developed economies like the US and UK, the fall has been close to 5%-6% approximately for the same period. Safeguarding one’s retirement income from market fluctuations becomes imperative. Annuities offer distinct advantages in this regard. There is no investment risk in annuities because you know the return and payout are guaranteed.

Also, most investment products, including fixed deposits (FDs), while giving guaranteed returns cannot give the same return forever. The longest tenure of FDs is 10 years. In comparison, annuities provide a guaranteed income (also called annuity) for as long as they live. Thus, an annuity removes investment risk and the risk of outliving one’s savings for annuitant in their retirement years (when there is no other income source available).

Tata AIA Life Insurance Smart Annuity Plan features

1. Annuity payment options – The product has three, flexible annuity options to meet a retiring individual’s needs – Immediate Life Annuity, Immediate Life Annuity with Return of Purchase Price, and Deferred Life Annuity with Return of Purchase Price.

For those who plan ahead, the deferred annuity option offers guaranteed income at rates locked in today, for a lifetime, and the income can commence at a future date, as decided by the annuitant. Deferment period may be between 1 to 10 years as chosen by you at inception.

2. Single life or joint life – The three payment options are available on single life and joint life basis. What that means is that in a joint-life option, income will continue to come in for as long as even one of the partners is alive. So, under joint life option, the annuity shall be payable in arrears as per payment mode chosen by you, for as long as either of the Primary or the Secondary Annuitant is alive. On the death of both annuitants, the annuity payments will cease and no further bene fits will be payable.

3. Get income for own or for others – Tata AIA Life Insurance Smart Annuity Plan offers the policyholder the option to choose an annuitant other than self. This ensures that one can provide for old age income of a close blood relative. Guaranteed income (or annuity) is paid out at a frequency – monthly, quarterly, half yearly or yearly – as chosen by the customer, at a rate guaranteed at the time of purchase.

Annuity rates vary by the age of the annuitant, the amount invested and the annuity option chosen.

4. Top-ups – The plan offers the choice of boosting the lifetime income post purchase of the plan by flexible top-ups. The additional annuity amount payable is based on the top-up amount and the annuity rate prevailing at the time of top-up.

5. Minimum age and investment – The minimum age of entry for the annuitant is 45 years under this plan/product. The minimum one-time investment can be as low as Rs 47,962 for an immediate life annuity, Rs 1.78 lakh for an immediate life annuity with return of purchase price and Rs 83,857 for a deferred life annuity with return of purchase price. The single premium invested is also eligible for a tax deduction under section 80CCC of the Income Tax Act. The maximum age of entry is 85 years.

6. Minimum annuity payout – The minimum annual payout is Rs 12,000. The minimum half-yearly payout is Rs 6,000, the minimum quarterly payout is Rs 3,000 and the minimum monthly payout in this annuity plan is Rs 1,000.

7. Death benefit – Annuities have no maturity benefit. This is because you get the money from the annuity right from the word go. But what happens when you die? The death benefit depends on the plan opted. For instance, in the case of Immediate Life Annuity option, there is no death benefit. In the case of Immediate Life Annuity with Return of Purchase, the death benefit is 100% of the purchase price. In the case of Deferred Life Annuity with Return of Purchase, the death benefit calculation is different. Here, the death benefit is higher of ‘Purchase Price + Guaranteed Price Option Additions (GA) minus Total Annuity Payout till the date of death’ or ‘110% of Purchase Price where GA = Purchase Price x Annuity Rate / 12). Guaranteed Additions are accrued at the end of every policy month during the deferment period. GA stops accruing at the end of the deferment period.

8. Annuity rates – We compared Tata AIA Life Insurance Smart Annuity Plan with some peer products. If a person of 50 years age buys an annuity by spending Rs 20 lakh, he/she can get Rs 150,475 as immediate life annuity per year. In comparison, ICICI Pru Life Insurance offers Rs 149,650. LIC’s Jeevan Shanti immediate annuity pays Rs 155,400.

In case of an immediate life annuity with return of purchase price, Tata AIA Life Smart Annuity plan pays Rs 134,463 annually for Rs 20 lakh for a 50-year old person. This compares favourably with HDFC Life New Immediate Annuity Plan that pays Rs 136,935 annually and return of purchase price only on the diagnosis of listed critical illnesses.

In the case of a deferred life annuity with return of purchase price (deferment period is 10 years), the Tata AIA Life product pays Rs 265,113 annually for Rs 20 lakh policy. In comparison, LIC Jeevan Shanti pays Rs 256,600 for the same investment conditions.

Sample annuity rates

RupeeIQ take – Tata AIA Life Insurance Smart Annuity Plan is an attractive plan with competitive annuity rates. The product would have been stronger if it had options like 3-5% increase in annuity every year or a life annuity with return of balance purchase price. Do note that annuity income is taxed. So, higher annuity rates are better because your post-tax income will be better.

Disclaimer – Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.


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Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. He can be contacted on