An annuity plan is type of a life insurance plan that ensures steady pension-like income. This is designed to help retired individuals manage their expenses even after regular income from salary or business has stopped. Joint life annuity plans are a category of annuity plan that features 2 co-annuitants. This ensures enhanced financial protection by ensuring regular annuity payouts continue while either of the co-annuitants are alive. ...Read More
A joint life annuity plan is a life insurance policy that aims to benefit two individuals (usually spouses or partners) by providing them with a steady, regular annuity payouts. This plan features two co-annuitants – a primary annuitant and a secondary annuitant. When both co-annuitants of a joint life annuity plan are alive, the primary annuitant is paid the guaranteed annuity payout at regular intervals.
Upon the demise of the primary beneficiary, the insurer continues making the regular annuity payouts to the surviving co-annuitant. Thus, it financially safeguards both partners against the risk of outliving their savings, providing a worry-free retirement. This makes a joint life annuity a popular option for retirement planning in India.
Joint annuity plans in India are offered by life insurance companies. When you purchase a joint life annuity plan, you and your spouse can sign up as co-annuitants. At the time of purchase you have to specify the premium payment interval period, the payout frequency, nominee details, etc. Here are details of how it works after you have made your selection:
Purchase
You have to pay the due premiums eithers as a lump sum or at regular intervals to the insurer. The insurer invests this in various assets to grow your investment over time.
Deferment
At the end of the premium payment term, payouts can be started immediately or deferred to a later date. If the deferment option is chosen, the corpus keeps growing during this deferment period allowing you to leverage the power of compounding. Payouts from the annuity plan begins once the deferment period ends.
Annuity payouts During Lifetime of the Primary Annuitant
If both annuitants are alive at the end of the deferment period, the annuity payouts are made to the primary annuitant named in the policy. This payout will continue at regular intervals over the lifetime of the primary annuitant.
How Payments Continue After Spouse’s Death?
When the primary annuitant i.e. the spouse passes away, payments continue for the surviving annuitant. Depending on the type of joint annuity plan chosen, the surviving annuitant receives either 100% of the annuity payout received by the primary annuitant or a pre-determined percentage (such as 50%) of the earlier annuity payout.
After Death of Both Annuitants
After death of both annuitants, the regular annuity payouts stops and the plan terminates. If the return of purchase price variant is chosen, the purchase price of the annuity plan is paid to the nominee as a life cover benefit.
There are several key features of joint life annuity plans that make them an ideal choice for retirement planning. Check out the key features and benefits of joint life annuity plans below to make an informed investment decision:
The interest rate for joint annuity plans tends to vary based on the selected plan and the insurer. However, there are a few factors that can affect the rate of return for joint life annuity plans. Check them out below:
The underlying joint life annuity formula is not mathematically different from that of ordinary annuity. The difference lies in the number of periods over which the payment will be made i.e. the life time of both annuitants instead of a single annuitant. The two variants of the joint life annuity formula based on present value and future value of annuities looks like this:
Present Value Calculation of Annuity
It calculates the current worth of future payments. The formula used for calculation of present value of annuities is as follows:
PV = C X [{1-(1+r)-n }/ r]
Here,
PV = Present value of an annuity
C = cash flow per period or payment amount
r = rate of interest
n = number of periods in which payment will be made
Future Value Calculation of Annuity
This formula is used to calculate the accumulated value of annuity payments over a predetermined time period. The formula used to calculate this is shown below:
FV = C X [{(1+r)n - 1} / r] X (1+r)
Here,
FV = Future value of annuity
C = cash flow per period or payment amount
r = rate of interest
n = number of periods in which payment will be made
Consider the below example for a joint life annuity plan with return of premium, where the survivor gets 100% of the annuity payout after the first annuitant passes away. The calculation can be easily completed using an annuity calculation based on the following assumptions:
Annuitants: Male age 50 and Female age 48
Investment: ₹5 lakhs p.a. for 6 years (Total Amount Invested: ₹30 Lakhs).
Annuity start: Age 56
Option: Joint Life with Return of Premium
Rate of return for the Annuity Plan = 5%
Based on the above inputs, the annual annuity payout would be around ₹2.91 lakhs p.a. (Approx. ₹24,263 per month) payable annually until both pass away.
Survivor Benefit: If the primary annuitant passes away, the secondary annuitant gets the same annuity payout as earlier i.e. prior
Return of Purchase Price: Upon the demise of the second annuitant, the initial purchase price is returned to the nominee.
There are 4 key types of joint life annuity plans that you need to consider when making your choice. These include:
Both single life and joint life annuity plans can serve as an ideal way to ensure a stable income flow after retirement. If you are wondering which one will best fit your financial needs, check out their key differences below:
| Feature | Single Life Annuity | Joint Life Annuity |
|---|---|---|
| Definition | Guaranteed regular payments for the lifetime of one individual i.e. the sole annuitant. | Guaranteed regular payments for the lifetime of two people – the co-annuitants. Payout continues as long any of the annuitants still survive. |
| Payout Duration | Payout stops immediately upon the demise of the sole annuitant. | Payout stops only after demise of both the co-annuitants. |
| Payout Amount/Rates | Higher monthly and annual payouts due to a shorter expected payout duration. | Lower individual payouts due to extended payout period. |
| Survivor Protection | Payouts stop after the annuitant’s demise so regular income benefit not available to other family members. | The co-annuitant continues receiving regular income even after the primary annuitant dies. This enhances financial protection. |
| Best Suited For | Individuals without dependants, a financially independent spouse, and/or those prioritising maximum income. | CIndividuals who want to ensure financial security of spouse/other dependents through regular income, even after their own demise.ell |
| Death Benefit | Available only if the policyholder opts for the return of purchase price option. In this case the nominee receives the purchase price of the annuity plan as death benefit. | Available only if the return of purchase price option is chosen. This ensures that the nominee receives the purchase price of the annuity plan as death benefit. |
| Eligibility | Single annuitant only. | Two co-annuitants typically a married couple. |
There are certain key points that you have to take into account while buying a joint life annuity plan. Here is how you can buy:
Buying an online joint life annuity is straightforward. You just need to visit your preferred insurer’s website and do the following:
Annuity starts immediately or after deferment. These steps may vary based on the insurer.
ARN: Mar26/Bg/24D
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