Guaranteed Lifetime Income Plans - GLIP

Guaranteed Lifetime Income Plans - GLIP

Guaranteed income plans, also known as fixed income plans or annuities, are important because they provide a steady stream of income for the investor. These plans have a guaranteed rate of interest, which means that the investor can be certain of a specific return on their investment. This can be especially beneficial for retirees or those nearing retirement, as it can provide a reliable source of income to supplement their other sources of income, such as a pension. Additionally, guaranteed income plans can help to mitigate the risk of outliving one's savings, as the income stream is guaranteed for a specific period of time or for the lifetime of the investor with capital protection.

As you may be aware that the interest rate on fixed deposits and Government Schemes like Public Provident Fund (PPF), Senior Citizen Savings Schemes (SCSS), Pradhan Mantri Vaya Vandana Yojana (PMVVY), Post Office Monthly Income Scheme (MIS), etc have fluctuated over the past 25 years, depending on various factors such as economic conditions, inflation, and monetary policy set by the Reserve Bank of India (RBI). However, in general, interest rates have trended downwards over this period. In the late 1990s and early 2000s, interest rates on fixed deposits were generally higher, with some banks and Government Schemes offering rates of 10%-12% or even higher for long-term deposits. However, as the economy improved and inflation fell, interest rates began to decline. The trend might continue in the future due to a combination of factors such as low inflation and surplus liquidity.

To overcome this situation and to lock onto a certain interest rate Insurance companies offer a variety of guaranteed income plans, also known as annuities, that provide a steady stream of income to policyholders. Some examples include:

  1. Immediate annuity plans: These plans provide an immediate income stream to policyholders, typically in the form of regular payments for a specified period of time or for the lifetime of the policyholder.
  2. Deferred annuity plans: These plans allow policyholders to accumulate savings over a specified period of time and then receive an income stream at a later date, such as upon retirement.
  3. Single premium annuity plans: These plans allow policyholders to make a one-time payment, and in return, receive regular income payments for a specified period of time or for the lifetime of the policyholder.
  4. Pension plans: These plans are designed to provide a steady income stream to policyholders during their retirement years.
  5. Unit-Linked Pension Plans (ULIPs): These plans combine the benefits of life insurance and investment. The premiums paid are invested in various funds and the returns earned are used to provide a regular income stream to the policyholder during retirement.
  6. Guaranteed maturity plans: These plans guarantee a maturity benefit to the policyholder after a certain period of time with a guaranteed rate of interest.

It's important to note that the features and terms of these plans can vary depending on the insurance company and specific product. It is recommended to consult with a financial advisor before purchasing any plan. 

The internal rate of return (IRR) of guaranteed income plans in India can vary depending on the specific plan and the insurance company offering it. The IRR for immediate annuity plans can be around 6-7% per annum, and it may vary depending on the policyholder's age, gender, and the option of the annuity plan they choose. Deferred annuity plans may offer higher IRRs, but it also depends on the performance of the underlying funds. The IRR for pension plans may vary from 7-8% per annum. The returns offered also depend on the duration of the deposit, with longer-term deposits typically offering higher rates of interest than shorter-term deposits

It's worth noting that the IRR of these plans is guaranteed by the insurance company, but the returns are not market-linked, hence the returns will be not as high as market-linked investments. It is also important to note that the IRR for these plans is not fixed and may change over time, also the IRR is not the only factor that should be considered when evaluating a guaranteed income plan. Other factors such as the level of guaranteed income, the length of the income stream, and the stability of the insurance company offering the plan should also be taken into account.

It is difficult to predict with certainty what the future rate of interest will be for fixed deposits or guaranteed income plans. The interest rates on these products are influenced by a variety of factors such as economic conditions, inflation, and monetary policy set by the Reserve Bank of India (RBI). In general, interest rates tend to be lower during periods of low inflation and economic growth, and higher during periods of high inflation and economic growth. However, the interest rate on fixed deposits and guaranteed income plans are also affected by the competition in the market and the credit risk of the bank or the insurance company.

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