What does Annuity mean? Why do people say one needs to buy an annuity?
Annuity refers to a specified income, payable at stated intervals for a fixed or a contingent period. The word is used more in the pension parlance. To receive a specified income for a fixed or contingent period (say till the time you live), one needs to have a corpus to begin with. Based on the amount of the corpus and type of annuity you are choosing, that is, guaranteed for a certain period or till the period you survive, your insurance company will decide the amount of pension you will receive. Hence, it is said one needs to buy an annuity. However, the amount of pension one would receive will depend on the type of pension chosen, the age at the time of buying the pension policy and the interest rate at that point of time.
I am 30 and earn Rs 4.50 lakh yearly. I will get married in six months. I do not have any health problem. I am looking for a term insurance plan, but have been unable to choose one. Will it make sense to buy the plan online or offline? To buy it online, will I have to go through the insurer's website or an insurance aggregator would do? Also, I want a higher cover with a critical illness plan. Kindly advise.
If you have zeroed in on term plans, as a thumb rule, the cover or the minimum sum assured should be at least 10-12 times your annual income. You should also consider affordability, that is, the premium you will have to pay. You need to take into account the changes in your life after marriage, such as children, their education and marriage, and looking after your parents. You may want to consider a higher cover at these times.
There are insurers who offer variants of term plans such as with increasing or decreasing sum assured, in addition to the level or fixed cover that is commonly available. An increasing term plan would help you beat inflation since the sum assured rises every year by a pre-determined amount; while a decreasing term cover will help you cover any outstanding loan liabilities in case of your untimely death. You should choose between these options keeping in mind your financial objectives.
From the point of a comprehensive insurance coverage, it would be a good idea to opt for a rider such as critical illness, along with the base plan. Buying online or offline is to be based on your convenience and provided you have completely understood the premium terms, coverage and financial goals. Aggregators help you compare indicative premiums offered by various insurers through their websites. The rates may vary depending on the underwriting standards pursued by different insurers. Ultimately, you have to purchase the plans from an insurer only. You can use aggregators to shop for premiums.
The write is the CEO of Bajaj Allianz Life Insurance
