The ongoing COVID-19 pandemic is driving everyone apprehensive about their finances and retirement plans. Hence, more people are realising the need for lifetime income products that involve minimum risk.

Live TV

Loading...

In order to build a robust retirement corpus, proper planning with enough knowledge at an early stage of life is important.

Moreover, in a scenario where interest rates on various investment options are falling, Vivek Jain, head investments BU, Policybazaar says, it is important to build an investment portfolio wisely.

For instance, Jain explains, Public Provident Fund (PPF), which offered 11 – 12 percent interest per annum in the 1990s, today merely gives 7.1 percent interest. Also, the rate of interest on bank fixed deposits has fallen from 8.5 percent in the year 2014 to 5.4 percent in the year 2020.

Also read:

5 factors to consider while renewing your car insurance

“These interest rates are further expected to fall by 3 – 5 percent in the next few years as the country evolves into a completely developed economy,” Jain added.

Given the situation, investing the hard-earned money in a suitable annuity product may be the answer.

As we know, annuity products are specifically designed to meet long-term retirement needs. Offered by life insurance companies, these give fixed cash flow and primarily serve as an income source for retired people.

"The annuity plan can be bought at any time in life. Some people choose to buy it when they are close to their retirement age, while some people prefer it during their mid-career who wishes to secure their assets," Jain said.

“An annuity plan allows investors to lock-in the existing interest rate not just for a period of 10-25 years but the entire life. Moreover, annuity plans are an excellent way to tackle reinvestment risk and reduce longevity risk as these plans guarantee a fixed income for life/until the policy term,” further explains Jain

In life insurance, Jain elaborates, there are products that help investors in accumulating a corpus with which they can buy an annuity later, but if they have a ready corpus, they can buy an annuity immediately. These are called deferred and immediate annuities, respectively.

Under many immediate annuity plans, investors also have the choice of getting all their premiums back.

Also, there are joint life immediate annuity plans where initially the policyholder gets a pension. Further, on the death of the policyholder, the spouse gets the pension for life. Later, on the death of the spouse, the premium invested is returned to the dependents as the legacy amount. Under such plans, the rate of interest is guaranteed for as long as the policyholder and spouse both are alive.

One of the most convenient ways to invest in annuity plans, Jain explains, is buying the plans online. Online plans are not only easy to buy but even promise a better rate of interest.

Investors should look at the past track record of the annuity provider before buying it.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

(Edited by : Jomy)