State Bank of India (SBI) vs Life Insurance Corporation (LIC): Know details before investing in annuity deposit scheme

For those looking for monthly income, especially senior citizens, the SBI Annuity Deposit Scheme (ADS) has become a popular, safe and reliable option.

When it comes to insurance, most people trust LIC with their money. Even now, when people think of retirement planning, the insurance behemoth LIC is the first name that comes to their mind.

Good SBI annuity deposit scheme for senior citizens

Most regular income products only provide interest consistently and, at the end of the term, return the investor’s initial investment. However, SBI ADS gives monthly principal repayments along with regular interest payments, like an EMI loan. Customers can deposit a one-time lump sum with SBI ADS and get a refund in monthly annuity payments that include the principal and interest as part of the payment, said Vinit Khandare, CEO and Founder, MyFundBazaar.

SBI Annuity Deposit Scheme vs LIC annuity scheme

The SBI Annuity Deposit Scheme has a tenure of ten years, making it a medium-term investment in terms of regular retirement income. Khandare said that while the life annuity from LIC will continue to pay as long as the annuitant lives, SCSS and POMIS offer a much shorter duration of five years.

SBI Annuity Deposit Scheme vs LIC annuity scheme. Where to invest?

Each option has advantages and disadvantages, ultimately depending on the investor’s preference.

According to Nirav Karkera, Head of Research, Fisdom, LIC’s longevity annuity plan is specifically designed for pensioners. Most annuity pension schemes, including the LIC life annuity, offer a lifetime payout option. It means you can receive payments for as long as you live.

SBI annuity deposit is different from pension annuity scheme. It only lasts ten years. “Here, timing is essential because if you intend to start the scheme when you are close to retirement or after 60 years, there is a chance that the money you will get from the scheme will not be enough to cover your increased living expenses and medical due coverage. with inflation & the reinvestment risk will then be higher,” said Nirav Karkera.

If you want fixed income, opt for LIC annuity scheme

If you want a steady income that will last your lifetime, consider a life insurance company’s life annuity scheme. “Make sure the scheme covers a significant portion of your regular income needs. That way, you will have a steady source of income for a longer period,” said Nirav.

SBI annuity scores over LIC

In terms of net return and liquidity, SBI annuity may be a better option for those who do not rely on it as their main source of income and want to diversify their retirement funds.

Nirav Karkera said that there are a variety of other instruments that can be more efficient and effective in sorting out retirement and periodic income.

Customers can get a fixed amount every month after depositing a one-time lump sum payment in SBI’s annuity deposit scheme. According to the official website of SBI, a fixed amount is provided to the account holder in equal monthly installments (EMI). The EMIs comprise a portion of the principal amount as well as interest on the reduced principal amount, multiplied by a quarterly break and discounted to the monthly value. You can invest in the annuity scheme for a period of 3 years, 5 years, 7 years, and 10 years. The interest rate as applicable to the SBI annuity scheme is the same as that of SBI fixed deposits (FD). Currently, SBI offers an interest rate ranging from 3% to 7.10% per annum to the general public on FD maturing in 7 days to ten years. Seniors get 50 bps more than the general public on these deposits.

LIC annuity plans

LIC offers three annuity plans: Jeevan Akshay – VII, New Jeevan Shanti, and Saral Pension.

Disclaimer: The opinions and recommendations made above are the opinions of individual analysts, and not those of Mint. We encourage investors to check with certified experts before making any investment decision.

Updated: 26 May 2023, 03:15 PM IST