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LIC Pension Plan: Don’t go broke at 60!

Created on 24 May 2023

Wraps up in 8 Min

Read by 945 people

Updated on 23 Jun 2023

We go through multiple phases in our lives in terms of income and wealth. It all begins when we start actively earning money, have the freedom to spend as much as we want and rarely give any thought to our spending. However, as we become older, we tend to start accumulating wealth as we invest.

Next comes retirement, where we start to worry about how we will have a steady income after our careers are over. We begin to wonder about so many things, and we all start to worry about becoming financially reliant on others.

And that's when annuity plans can save us. So let’s understand what an annuity plan is…

If we put it simply, under an annuity plan, we have to deposit a lump sum amount to a financial institution, and then, after retirement, we get a fixed income for the rest of our life.
Let’s understand how an annuity plan is beneficial for you:

1. Risk-free option: The money an individual invests in the annuity plans is absolutely risk-free because annuity plans are not at all linked to the market. So whatever fluctuations or changes happen in the market, they won’t affect the amount the individual has invested in the annuity plans.
2. Secured life: Once you have money invested in an annuity plan, you have the assurance that you won't need to become financially dependent on anyone, even after retiring. In other words, an annuity plan gives you financial independence after you retire, allowing you to live life to the fullest without having to settle for anything less.
3. Convenient income: With an annuity plan, you can choose to receive payments monthly, quarterly, half-yearly, or even annually. You can choose this depending on which frequency is most convenient for you to receive payments.

Every annuity agreement has two stages.

  • The initial phase is the consolidation stage, or the time when you save for retirement and maybe expand your retirement savings while increasing the annuity's cash value.
  • The beginning of the handing-out stage signals the conclusion of the accumulating phase. You are now prepared to start withdrawing money to generate a living in retirement. This process of transforming your annuity into monthly payments for retirement is known as annuitisation.

Types of Annuity Plans

After understanding the basics of annuity plans, let’s understand the types of the same.

1. Deferred annuity: A deferred annuity offers a lump-sum amount or regular income payments at a future date that is guaranteed. The insurer receives either a one-time payment or regular premium payments from you, which it will then invest in accordance with your contract. Deferred annuities offer the chance for the principle to increase before payments are made, based on what type of investment you choose.

Deferred annuity plans are a wonderful choice if you intend to make an investment into your retirement plan on a tax-deferred basis, which means you won't be charged for it until you withdraw money.

2. Immediate annuity: Calculating your life expectancy is one of the most challenging aspects of retirement income planning. Instant annuities are created particularly to offer a guaranteed lifelong payout at once.  However, the liquidity is lost. In general terms, if you need that entire sum of money for emergencies, you aren't going to have access to it. Though, a lifetime instant annuity can be the best choice for you if guaranteeing a steady income is a top priority. The fact that the costs are incorporated into the payout is one aspect that might make instant annuities so alluring. 

This enables you to calculate the amount of money you will get throughout your lifespan and the life of your spouse, depending on the sum you initially agreed to pay.

3. Fixed annuity: Probably the easiest sort of annuity to comprehend is the fixed annuity. Your investment earns a fixed interest rate guaranteed by the insurance company for the predetermined amount of the period (the guarantee period). The duration of your guaranteed period could range from one year to the entirety of the assured rate of return on your investment.

You have the option to annuitise, renew, or shift your invested funds to an alternative pension term or retirement account when your contract expires or the guarantee period has ended. Your income is often not affected by market volatility because fixed annuities give a certain interest rate, allowing you to predict the size of your monthly payments. Of course, the disadvantage of staying in annuities that are fixed and having an established rate of return would be that you would be unable to profit from any market upswings. 

Additionally, it's possible that the promised interest rate won't keep up with inflation. Overall, a fixed annuity may be most advantageous for providing retirement income during the accumulation phase and less advantageous during the annuitisation phase.

4. Variable annuity: Investing in sub-accounts is possible with a variable annuity, a kind of tax-deferred annuity contract. Sub-accounts will get affected according to the market volatility, like mutual funds. Additionally, variable annuities include an inheritance benefit rider or a payment rider that guarantees a certain amount of money for your beneficiaries. 
A rider known as a Guaranteed Lifelong Withdrawal Benefit (GLWB) aids in reducing both longevity danger and market risk. 
If you have 15 years or less till retirement, this dual protection can be useful.
Additionally, you might want to think about including a guaranteed income rider in your variable annuity. You might be able to concentrate on accomplishing your objectives in the present, knowing that you will not outlast your money thanks to guaranteed income features.

LIC Annuity Plans

When it comes to investing their hard-earned money in pension plans or other financial programs, people always have faith in LIC (Life Insurance Corporation). The Ministry of Finance oversees and the Government of India owns one of the most reputable insurance companies in the nation, LIC, which is also the largest institutional investor in India.  As of May 2022, it had an AUM of ₹41 trillion.

In fact, LIC launched its IPO on May 4, 2022, but for now, let's look at the annuity options that LIC has to offer. Here are the Annuity plans that LIC has to offer:

LIC Jeevan Akshay VII

A non-linked, non-participating individual instant annuity plan called LIC Jeevan Akshay-VII was introduced on February 28, 2023. Both online as well as offline purchases of this plan are possible. 

In this immediate annuity plan, after receiving a lump sum payment, the owner of the policy has the choice of 10 different annuity types. When the policy first begins, the annuity interest rates are guaranteed, and payments are made for the duration of the annuitant(s)' lives. 

To apply for this policy minimum age required is 30 years and the maximum age is 65 years. Also, the minimum purchase price for the annuity plan is ₹1,00,000. 

LIC Jeevan Nidhi Plan

The classic deferred life assurance policy offered by LIC, the New Jeevan Nidhi Plan, enables you to accumulate a retirement fund over the course of the policy by making regular premium payments. 

When this plan matures, you start receiving annuities. For entering in this annuity plan the minimum age requirement is 20 years and the maximum age requirement is 60 years. The policy term is between 5 years to 35 years and the minimum sum assured is ₹1,00,000 and there is no maximum limit. The monthly pension amount is ₹1,000 and the maximum amount is ₹10,000.

Here are some features of this policy:

  • This plan is able to take part in bonus declarations made by LIC because it has a participating pension policy.
  • The earned bonuses and guaranteed amount are paid as maturity benefits when this annuity plan matures.
  • Additionally, the corpus that increases the benefits provided under this plan also receives guaranteed additions.
  • The maturity benefits may also be utilized to buy a single premium delayed annuity or an instant annuity plan.
  • The accruing sum assured, along with promised additions and earned bonuses, is paid upon the insured's passing.
  • You can also convert one-third of the maturity advantages into cash.
  • The riders for accidental death and disability benefits are offered as options. By paying an additional premium, you can choose these riders, which guarantee to pay a supplementary amount guaranteed in the event of accidental death or incapacity.
  • If you choose to pay the charge annually or twice a year, you will receive reductions. These premiums are discounted by 1 and 2 percent, respectively.
  • Payment options for this product include both recurring and one-time premiums.
  • If you select coverage for ₹3 lakh or more, you will additionally receive a rebate on the high sum assured.

LIC Jeevan Shanti plan

A policyholder under this plan is free to select either the Immediate Annuity or the Deferred Annuity option. The annuity rates for both options are predetermined at the time the policy is started. The annuitant(s) will receive payments from the annuities for the rest of their lives. The policy can be purchased by a person using online as well as offline methods.
If you choose an instant annuity, the minimum age requirement is 30 years, and the maximum age is 85 years; however, if you choose a deferred annuity, the lowest age requirement is 30 years, but the maximum age is 79 years.

The LIC Jeevan Shanti plan offers the following advantages, summed up:

  • LIC's Jeevan Shanti plan guarantees a lifelong income through a single investment.
  • In the deferment time, it provides enhancements that are assured.
  • To meet the needs of various people who are considering purchasing the plan, the LIC Jeevan Shanti plan offers nine distinct annuity alternatives.
  • Since the start of the plan, the annuity rates have been guaranteed.
  • The policyholder has the opportunity to select between Instant Pension and Deferred Annuity choices under the LIC Jeevan Shanti plan.
  • The policyholder may use the lending feature after one insurance year has passed. The free-look period for the LIC Jeevan Shanti policy is 15 days. If a policyholder is not pleased with the Terms and Conditions, he or she has 15 days to give back the policy to the Corporation.
  • The option to purchase the scheme for the protection of a dependant person with a disability (Divyangjan) is also provided by the policy.
  • The LIC Jeevan Shanti policy gives the customer the choice to give up the plan. After three months from the end of the policy, a policyholder may cancel the plan at any time.
  • It is possible to purchase a LIC Jeevan Shanti policy for oneself or jointly with a grandparent, parent, sibling, spouse, kid, or grandchild.

Documents required to apply for annuity plans offered by LIC - Adhaar Crad, Proof of Address, proof of income, PAN Card.

The Bottom Line

Basically, the majority of annuity programs guarantee a consistent income for the rest of one's life.  The benefit of having a pension is that it guarantees that a person's finances won't suffer if they don't receive a monthly paycheck. 

Plans for annuities are particularly created with a variety of considerations in mind, such as inflation, rising medical costs, etc.  Our nation's growing cost of living is a reality, and if it isn't taken seriously, it might have a negative effect on retirement funds. By contrasting the constant growth in values with the sum secured that is earned over time, annuity plans can safeguard you against inflation.

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Shreni Sharma

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Shreni is pursuing PGPM at ICFAI Business School Pune. Shreni is a sports fanatic, loves to read, an avid Potterhead, and most importantly, a finance enthusiast. She wants to explore every aspect of life to the fullest and push herself every day to achieve her best self. 


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