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Need assistance in choosing the right insurance plan? Get a call from our Expert.

Need assistance in choosing the right insurance plan?Get a call from our Expert.

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TATA AIA Life Insurance Co. Ltd will send you updates on your policy, new products & services, insurance solutions or related information. Select here to opt-in. T&C apply.

Regular Annuity or Lump Sum - What is the Right Choice?


Planning is a simple yet effective way to prepare for the future. Irrespective of whether you are planning for the uncertainties that are an inherent part of life or certain life events, you can never go amiss with the control that planning entails. One of the major plans you must make as early as possible in life is a retirement plan.


What is a Retirement Plan?


A retirement plan is, as the name suggests, a financial plan for your life after retirement. Once you retire, the regular stream of income that is a characteristic of your professional life and earning years is likely to cease. What is not expected to cease, however, is your expenses, particularly fixed expenses such as rent, food bills, utility bills, and medical bills, to name a few.


It is, therefore, prudent to start retirement planning as soon as you start your professional life and have a steady inflow of income. It is simple to purchase a retirement plan. At Tata AIA Life Insurance, we offer an excellent range of retirement plans. Not only do these plans serve as safe and productive instruments for you to save money for your retirement corpus, but they also provide you with substantial life insurance coverage.
 

Choosing the Mode of Pension Payout: Regular Pension vs Lump Sum Payout 
 


When finalising a retirement plan and the benefits it offers, one of the key decisions you have to make is whether you wish to opt for a lump sum payout or purchase an annuity. Before comparing and deciding between the two forms of income payouts in a pension plan, it is important to understand what they are and how they work.


A lump sum insurance policy entails that the payout of the entire amount accumulated in your retirement corpus shall happen in one go. This payout option works apt for people who wish to receive their entire retirement fund in the same instalment so as to be able to invest the money as per their financial plan.


A regular annuity plan, in stark contrast with a lump sum policy, offers you the convenience of a steady stream of income even after retirement. What is more, is that the frequency of the payouts from a regular annuity plan can be determined by you. This frequency can be monthly, quarterly, or yearly, depending upon your financial goals and requirements.
 

With annuity plans, you get the flexibility to choose from two types of payout options based on the time of payout - an immediate annuity and a deferred annuity. Whilst the former entails the beginning of the income payout from your retirement plan immediately after the payment of a one-time lump sum premium, the latter enables you to build your retirement corpus overtime before the payouts start. A deferred annuity plan is often the preferred mode of payout for young professionals who steadily build a corpus for post-retirement income.
 

In order to decide between a lump sum payout and a regular annuity payout, you must consider the pros and cons of each mode of payout. The following table highlights these elements.
 

Parameter

Pros

Cons

Lump sum payout

  • Immediate availability of your entire retirement corpus
  • Flexibility to reinvest your retirement fund as you wish
  • Freedom to settle your debts and financial obligations, if any
  • Chances of your retirement corpus running out due to mismanagement or overspending
  • No option to have a steady stream of income after retirement
  • Taxation* on the entire payout in one go, leading to a lower payout than annuity payouts

Annuity payout

  • A steady stream of income for the period chosen by you
  • The option to transfer the benefits of annuity payouts to your beneficiary
  • Taxation* on each payout as you receive it
  • Delay in receiving your own money
  • Chances of your passing before the end of the annuity term
  • Potential financial constraints for emergency expenses


You must, therefore, make the decision between an annuity payout and a lump sum payout after due deliberation. It is worth noting here that some retirement plans offer a combination of a lump sum payout and an annuity payout: You can, thus, receive a part of your retirement corpus in the form of a lump sum payment and invest the remainder in an annuity plan.


Salient Features of Life Insurance Retirement Plans


With the dual benefits of investment and insurance in the same retirement plan or pension plan, you do not have to separately allocate funds for a life insurance policy and a retirement plan.


Here are some of the salient features of Life Insurance retirement plans:
 

  • A substantial life insurance cover

  • Regular income

  • Freedom to choose the mode of premium payment

  • Choice of the beginning of the income payout period

  • Flexibility to choose the mode and frequency of the payout of guaranteed1 income

  • Tax* Benefits as per the prevailing tax* laws

  • Flexibility to add additional life insurance riders#

  • Option to take a loan against the plan (available with some plans)


Conclusion


Whether you opt for a lump sum payout in your retirement plan or select a regular payment plan, it is pivotal that the decision is driven by your financial requirements and the analysis and comparison of the different modes of income payout. You can use our online calculator to determine your choice of features and payout modes and choose the plan that matches your needs.


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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

What are the retirement plans from Tata AIA Life Insurance that I can choose from?

At Tata AIA Life Insurance, we offer a wide array of retirement plans, comprising several benefits and more degree of flexibility. Some of our popular retirement plans are as follows:

Should I opt for a lump sum payout in my pension plan or an annuity?

You can choose either a lump sum payout in your pension plan or opt for a regular annuity plan. The selection of the mode of payout is contingent upon your financial goals and requirement. If you wish to receive the entire amount upon retirement and reinvest in diversified avenues, you can opt for a lump sum insurance policy. However, if you want a steady stream of income from your retirement plan, opt for a regular annuity plan.

Disclaimer

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility for tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry.
  • #Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office.