There are about 10 annuity payment options offered by various life insurance companies. Listed below are the most prominent ones.
Life annuity: It is based on the payment mode opted for until death of the annuitant. The payment thereafter ceases.
Life annuity with return of purchase price: In this case, after demise of the annuitant, the annuity payment ceases but the purchase price is paid back to the spouse or the nominee.
Life annuity paid between 5 and 20 years: Joint life annuity with return of purchase price:
The ‘ guaranteed pension for life’ option offers very low returns (between five per cent and eight per cent).
The income tax benefit is available under Section 80CCC only, thereby making this product financially unattractive to middle-aged persons looking for additional pension income when they retire from active career.
The money is required to be locked for life of the person participating in this plan – which could affect his liquidity in case of emergency cash requirements, as most of the life insurance companies do not allow loans, assignment (to take a loan from either the insurance company or a bank) and surrender of the policy (to get surrender value). So, should you need a large sum due to illness or another emergency, you may find yourself out of money.