Everyone desires a second income stream that can take care of future aspirations while helping households deal with inflation and increasing the costs of essentials. At the same time, a second income is also helpful for many individuals after retirement, especially those without pensions. So how do you generate a second income safely through investments, and that too without any market-linked risks? The answer lies in choosing a guaranteed income plan.
What do we mean by a Guaranteed Income Insurance Plan?
A guaranteed income plan is a non-participating scheme where you can pay premiums annually for your chosen duration, depending on your financial circumstances and age. When the policy matures, you will get a guaranteed payout in the form of regular income for a fixed number of years, depending on the insurance coverage, premium, and sum assured at maturity. The policy term will include the duration for which you pay the premium and the tenure for which you receive the payout.
The best guaranteed monthly income plans will help you invest in a second income stream for the future without taking any risks. You get regular and guaranteed payouts, with frequency options like yearly, monthly, half-yearly, and quarterly. At the same time, you also get life insurance coverage throughout the plan period. Now that you have a basic idea about these plans and how they work, here is a deeper understanding of their key features and benefits.
Reasons to Buy a Guaranteed Income Plan
There are many reasons why you should consider a guaranteed income plan for your investment portfolio. Here’s looking at some of them.
- Income replacement after retirement - A guaranteed income insurance plan can help you substitute or replace your lost income after you retire. Payouts may help you take care of daily needs without any financial burden or even without dipping into your savings and other investments. You may already know how crucial retirement planning is. Say you are a 30-year-old person who has 30 years to retire and plans to live a 30-year post-retirement life.
Let’s assume your current monthly expenditure is Rs 30,000. If the expected return on the retirement corpus is 7%, then you will require a corpus of Rs 3.36 crore at the age of 60. After accounting for 5% inflation, this sum would allow the person to maintain their current standard of living. But, if inflation rises by 0.5%, from 5% to 5.5%, the person will need to save an additional Rs 76.74 lakh. Considering the prolonged period of high inflation that we are going through; it would be a good idea to opt for a financial product like a Guaranteed Income Plan that can ensure a comfortable retirement for you.
- Covering additional expenditure in the future: While you may earn enough to cover all your needs in the current scenario, there may be additional expenses to cover in the future. This may include additional loans/debts, costs of medical treatments, and other financial commitments. Guaranteed income plans help you build an additional income source for meeting these needs. Life coverage is also available with these plans, and this is another key advantage for policyholders. In the event of the policyholder’s untimely demise within the tenure, the death benefit will be disbursed to the nominees to help them maintain the same living standards and meet their financial goals without any hurdles.
- Customizable Plan Features: Most guaranteed income plans come with options to choose your payouts based on your needs at a certain stage in life. You can select the tenure of premium payment along with the mode of payment too. You may also defer payouts by some years, in some cases, in order to sync your income with your future needs. You can opt for payouts on a half-yearly, monthly, yearly, or quarterly basis as well. Some plans offer you the option to get a lump sum payout upon maturity, along with choosing an income option. This will help you take care of pressing needs at the time of maturity with a larger amount while continuing to receive a steady income afterwards. You can personalize several aspects of these policies, making them excellent options for your portfolio.
- Tackling Inflation: We have already discussed the current trends of inflation, but even when it is not as high as right now, it’s still the biggest risk for any portfolio and may lead to costs skyrocketing in the future. A guaranteed income plan may help you build another income source that will help you cover these cost increases in the future to maintain the same living standards that you are used to currently.
- Balancing Risks in Your Portfolio: You may have other market-linked investments in your portfolio, including equity/debt funds, stocks, and so on. However, these assets have higher risks since the markets are unpredictable. You do not have any guarantees of how they will perform after a certain period. Hence, a guaranteed income insurance plan balances portfolio risks, avoiding market unpredictability and offering you fixed payouts from the outset.
- Options to Add Riders: The best guaranteed monthly income plans give you options to add riders for broader coverage and benefits. For example, you can add riders like critical illness, waiver of premium, hospital cash benefit, and more. These help you financially secure your family against various untoward situations in the future. Right from being diagnosed with a serious illness to a situation where you cannot pay the premium due to various circumstances, these riders not only expand overall coverage but also bring you greater peace of mind.
- Tax Benefits: Another advantage of choosing guaranteed income plans is getting good tax benefits. The premiums you pay for the scheme will be tax-deductible under Section 80C. In addition, the payouts that you receive will also be exempted from taxes under Section 10 (10D), subject to conditions.
Returning to the core premise- how do you generate safe and guaranteed income for the future without any major risks? You already know the answer by now. Guaranteed income plans promise to help you bypass market risks while ensuring additional funds that help you cover increasing lifestyle costs, post-retirement expenses, and other needs without any financial strain. They are ideal for conservative investors who usually shy away from market risks but worry about combating inflation in the future, especially after retirement.
Chirag Iyer - BFSI Enthusiast
Chirag is a writer and an avid reader who loves to drink coffee! His other interests include boxing, karate, and singing.