Can Kotak Lifetime Income Plan settle your uncertain financial future for a secured lifetime?
Can Kotak Lifetime Income Plan secure your dream of retirement with a steady income stream?
Will the Kotak Lifetime Income Plan provide the required regular income?
In this article, we will evaluate the features, advantages, disadvantages, and returns of the Kotak Lifetime Income Plan through an IRR calculation. This review will highlight how to best utilize your retirement savings.
Table of Contents:
What is the Kotak Lifetime Income Plan?
What are the features of the Kotak Lifetime Income Plan?
Who is eligible for the Kotak Lifetime Income Plan?
What are the annuity options and the benefits receivable in the Kotak Lifetime Income Plan?
Free Look period of the Kotak Lifetime Income Plan
Surrendering the Kotak Lifetime Income Plan
What are the advantages of the Kotak Lifetime Income Plan?
What are the disadvantages of the Kotak Lifetime Income Plan?
Research Methodology of the Kotak Lifetime Income Plan
Benefit Illustration – IRR Analysis of Kotak Lifetime Income Plan
Kotak Lifetime Income Plan Vs Other Investment Products
Kotak Lifetime Income Plan Vs Other Fixed Return Instruments
Kotak Lifetime Income Plan Vs Inflation-Adjusted Income
Final Verdict on Kotak Lifetime Income Plan
What is the Kotak Lifetime Income Plan?
Kotak Lifetime Income Plan is a non-linked and non-participating immediate annuity plan. Kotak Lifetime Income Plan gives you / your members the assurance of a regular stream of income throughout life.
What are the features of the Kotak Lifetime Income Plan?
- Single premium, Immediate annuity plan
- 6 annuity options to choose from
- Issued annuity rates are guaranteed for a lifetime
- Higher Annuity Rates for Higher Premium
Who is eligible for the Kotak Lifetime Income Plan?
What are the annuity options and the benefits receivable in the Kotak Lifetime Income Plan?
Kotak Lifetime Income Plan comes with six Annuity options to choose from depending on the specific needs of the customer.
Annuity Option |
Annuity Amount payable |
On the death of the annuitant |
Return of Purchase price |
Option 1: Lifetime Income |
Throughout the lifetime of the Annuitant |
Annuity Cease |
No |
Option 2: Lifetime Income with Cash-back |
Throughout the lifetime of the Annuitant |
Annuity Cease |
Yes |
Option 3: Lifetime Income with Term Guarantee |
Guaranteed period of 5 / 10 / 15 / 20 years |
Annuity ceases after the end of the guaranteed period or on death whichever is later |
No |
Option 4: Last survivor Lifetime Income with 100% annuity to Surviving Spouse |
Throughout the lifetime of the last survivor |
100% Annuity continues to the secondary Annuitant |
No |
Option 5: Last survivor Lifetime Income with 50% annuity to Surviving Spouse |
Throughout the lifetime of the last survivor |
50% Annuity continues to the secondary Annuitant |
No |
Option 6: Last survivor Lifetime Income with 100% annuity to the Surviving Spouse and Cash-back on the death of the Surviving Spouse |
Throughout the lifetime of the last survivor |
100% Annuity continues to the secondary Annuitant |
Yes |
Option 1: Lifetime Income
Annuity payout will be made throughout the lifetime of the Annuitant and will cease only on the death of the Annuitant.
Option 2: Lifetime Income with Cash-back
Annuity payout will be made throughout the lifetime of the Annuitant and upon the death of the Annuitant, the Total Premium paid for purchasing the plan will be paid back to the beneficiary.
Option 3: Lifetime Income with Term Guarantee
Annuity payout will be made at least for a guaranteed period of 5 / 10 / 15 / 20 years as chosen by the Annuitant irrespective of the survival of the Annuitant.
That means, upon the death of the annuitant during the guaranteed term, the annuity payout to the nominee will continue till the expiry of the guaranteed term.
In case the Annuitant survives the chosen guaranteed term then the payout will continue throughout his / her lifetime and on death the annuity payout will cease.
Option 4: Last survivor Lifetime Income with 100% annuity to Surviving Spouse
Annuity payout will be made throughout the lifetime of the Primary Annuitant and upon his / her death 100% of the initial annuity payout will be made throughout the lifetime of the Surviving Spouse (Secondary Annuitant).
Option 5: Last survivor Lifetime Income with 50% annuity to Surviving Spouse
Annuity payout will be made throughout the lifetime of the Primary Annuitant and upon his / her death 50% of the initial income payout will be made throughout the lifetime of the Surviving Spouse (Secondary Annuitant).
Option 6: Last survivor Lifetime Income with 100% annuity to the Surviving Spouse and Cash-back on the death of the Surviving Spouse
Annuity payout will be made throughout the lifetime of the Primary Annuitant and upon his / her death 100% of the initial income payout will be made throughout the lifetime of the Surviving Spouse (Secondary Annuitant).
On the death of the surviving Annuitant, Total Premium paid for purchasing the Kotak Lifetime Income Plan will be paid back to the nominee.
Death benefit
Death Benefit: Death Benefit shall be payable as per the Annuity Option opted by you. It is available for Option 2 and Option 6. A lump-sum amount equal to Total Premium (purchase price) is payable as the death benefit.
Free Look period of the Kotak Lifetime Income Plan
If the policyholder is not agreeable with any of the terms and conditions of the Kotak Lifetime Income Plan, he may choose to return the Kotak Lifetime Income Plan policy within 15 days for a policy sold through all channels (except for Distance Marketing mode and electronic policies which will have 30 Days).
Surrendering the Kotak Lifetime Income Plan
You have the flexibility to surrender the Kotak Lifetime Income Plan policy only if you have opted for plan option 1 and plan option 6.
You can surrender the Kotak Lifetime Income Plan policy anytime during the lifetime and the surrender benefit shall be the Guaranteed Surrender Value which is 10% of Total Premium paid.
What are the advantages of the Kotak Lifetime Income Plan?
- High Premium Discounts i.e. higher annuity for higher premium
- An annuitant, who has availed an immediate annuity, can subsequently make an additional annuity purchase to increase the annuity payout.
- This plan is available for NPS subscribers
Research Methodology of the Kotak Lifetime Income Plan
Next, let’s move on to the calculation aspect. Although the Kotak Lifetime Income Plan offers guaranteed payouts, it’s essential to examine the returns in detail.
We’ve calculated the Internal Rate of Return (IRR) based on a quote from the Kotak Life Portal.
This analysis will provide you with better insights on effectively allocating your retirement funds.
Benefit Illustration – IRR Analysis of Kotak Lifetime Income Plan
A 60-year-old retiree purchases a Kotak Lifetime Income plan with a purchase price of ₹25 Lakhs, opting for Plan Option 2: Lifetime Income with Cash-back. His annual annuity is ₹1.79 Lakhs.
Assuming the annuitant’s life expectancy is 85 years, he will receive the annuity until then, and upon his death, the purchase price will be returned to his nominee.
Male |
60 years |
Purchase Price |
₹ 25,00,000 |
Annuity |
1,79,119 |
Annuity Option |
Option 2 |
Returns |
7.06% |
Based on these cash flows, the IRR is calculated to be 7.06% as per the Kotak Lifetime Income Plan maturity calculator. This return might seem attractive for a senior citizen. However, the plan has significant drawbacks in terms of liquidity.
Once you buy this plan, you cannot surrender it (except for specific plan options). Additionally, the annuity remains a fixed amount throughout the plan without a step-up option.
The Kotak Lifetime Income plan faces issues with liquidity and inflation-adjusted income. These drawbacks reduce the overall value of the plan, despite its seemingly attractive returns.
Kotak Lifetime Income Plan Vs Other Investment Products
Your post-retirement income from the Kotak Lifetime Income Plan is guaranteed, but your retirement corpus is locked. Therefore, let’s explore other investment options that offer better returns and liquidity. These options can be combined to provide a regular payout.
Kotak Lifetime Income Plan Vs Other Fixed Return Instruments
The following alternatives offer regular income similar to the Kotak Lifetime Income Plan, but with higher yields and liquidity (as of June 2024):
Investment Option |
Expected Returns |
Bank Fixed Deposit (FD) |
6-7% p.a. |
Senior Citizen Savings Scheme (SCSS) |
8.20% p.a. |
RBI Floating Rate Savings Bond |
8.05% p.a. |
– Bank Fixed Deposit: A secure investment where retirees can park their corpus to earn a fixed interest rate, providing regular and predictable income.
– Senior Citizen Savings Scheme: A government-backed scheme offering higher interest rates specifically for seniors, ensuring regular income with a relatively low risk.
– RBI Floating Rate Bond: A government bond with interest rates that adjust with market rates, offering the potential for higher returns and regular income, but with some interest rate risk.
However, these options may not keep pace with inflation. Diversifying your retirement corpus between equity and debt can help mitigate inflation risks. Let’s delve into this investment strategy with some numerical analysis.
Kotak Lifetime Income Plan Vs Inflation-Adjusted Income
Let’s use the same figures as in the Kotak Lifetime Income Plan, with a retirement corpus of ₹25 Lakhs and an initial annual withdrawal (annuity) of ₹1.79 Lakhs.
Assume that 60% of the ₹25 Lakhs, i.e., ₹15 Lakhs, is invested in equity for wealth creation, while the remaining ₹10 Lakhs is allocated to debt instruments for regular needs. The equity investment is expected to generate a return of 12%, and the debt investment yields 6%.
Age |
Equity Portion |
Shift from Equity to Debt |
Debt Portion |
||||
Opening Balance |
Yearly withdrawal |
Closing Balance |
Opening Balance |
Yearly withdrawal |
Closing Balance |
||
60 |
15,00,000 |
– |
16,80,000 |
– |
10,00,000 |
1,79,119 |
8,70,134 |
61 |
16,80,000 |
– |
18,81,600 |
– |
8,70,134 |
1,79,119 |
7,32,476 |
62 |
18,81,600 |
– |
21,07,392 |
– |
7,32,476 |
1,79,119 |
5,86,558 |
63 |
21,07,392 |
– |
23,60,279 |
– |
5,86,558 |
1,79,119 |
4,31,886 |
64 |
23,60,279 |
– |
26,43,513 |
– |
4,31,886 |
1,79,119 |
2,67,932 |
65 |
26,43,513 |
– |
29,60,734 |
– |
2,67,932 |
1,79,119 |
94,142 |
66 |
29,60,734 |
15,00,000 |
16,36,022 |
15,00,000 |
15,94,142 |
1,89,866 |
14,88,533 |
67 |
16,36,022 |
– |
18,32,345 |
– |
14,88,533 |
1,89,866 |
13,76,587 |
68 |
18,32,345 |
– |
20,52,226 |
– |
13,76,587 |
1,89,866 |
12,57,924 |
69 |
20,52,226 |
– |
22,98,493 |
– |
12,57,924 |
1,89,866 |
11,32,141 |
70 |
22,98,493 |
– |
25,74,312 |
– |
11,32,141 |
1,89,866 |
9,98,811 |
71 |
25,74,312 |
– |
28,83,230 |
– |
9,98,811 |
1,89,866 |
8,57,482 |
72 |
28,83,230 |
15,00,000 |
15,49,218 |
15,00,000 |
23,57,482 |
2,01,258 |
22,85,597 |
73 |
15,49,218 |
– |
17,35,124 |
– |
22,85,597 |
2,01,258 |
22,09,399 |
74 |
17,35,124 |
– |
19,43,339 |
– |
22,09,399 |
2,01,258 |
21,28,630 |
75 |
19,43,339 |
– |
21,76,539 |
– |
21,28,630 |
2,01,258 |
20,43,014 |
76 |
21,76,539 |
– |
24,37,724 |
– |
20,43,014 |
2,01,258 |
19,52,261 |
77 |
24,37,724 |
– |
27,30,251 |
– |
19,52,261 |
2,01,258 |
18,56,063 |
78 |
27,30,251 |
27,30,251 |
-0 |
27,30,251 |
45,86,314 |
2,13,334 |
46,35,359 |
79 |
46,35,359 |
2,13,334 |
46,87,347 |
||||
80 |
46,87,347 |
2,13,334 |
47,42,454 |
||||
81 |
47,42,454 |
2,13,334 |
48,00,868 |
||||
82 |
48,00,868 |
2,13,334 |
48,62,787 |
||||
83 |
48,62,787 |
2,13,334 |
49,28,420 |
||||
84 |
49,28,420 |
2,13,334 |
49,97,992 |
||||
85 |
49,97,992 |
2,13,334 |
50,71,738 |
Every 6 years, the debt portion is replenished from the equity portion, and the annual withdrawal amount increases by 6% to combat inflation.
This strategy ensures that the equity portion helps counteract inflation and maintain your lifestyle post-retirement, while the debt portion covers regular needs.
The allocation ratio is set at 60:40 between equity and debt, with rebalancing every 6 years.
The final transfer from equity to debt occurs at the age of 78. This example illustrates one way to balance assets, although it can be adjusted based on individual preferences and risk tolerance.
With this strategy:
– You get regular income.
– You combat inflation and maintain your lifestyle.
– Your retirement corpus outlives you.
Final Verdict on Kotak Lifetime Income Plan
The Kotak Lifetime Income Plan is a hassle-free, single premium immediate annuity plan. It offers various combinations of individual and joint life annuities, with or without the return of the purchase price. Only certain plan options allow for surrender and the return of the purchase price.
While the plan provides a decent return, a wise investment choice should consider safety, liquidity, and return. In terms of returns, there are better-yielding, safe investment products available in the market.
Liquidity is also limited or almost non-existent with the Kotak Lifetime Income Plan and also has a high agent commission
A comparative analysis shows that other alternative investments surpass the Kotak Lifetime Income Plan in terms of safety, liquidity, and returns.
Incorporating equity investments into your retirement portfolio can help navigate inflation risk effectively. Based on your risk tolerance level, determine a balanced asset allocation strategy. Ensure you create a well-suited investment plan after thorough self-assessment.
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A robust retirement plan can simplify this process. If you need guidance, consult a Certified Financial Planner who can tailor a customized plan based on your personal preferences.
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