A life pension with return of corpus, also known as a return of capital pension, is a type of annuity that provides a regular income stream for life, while also guaranteeing the return of the original investment amount.
This type of pension is particularly attractive to individuals seeking a secure retirement income with the assurance that their principal investment will be returned to their beneficiaries upon their death.
How it Works:
When you purchase a life pension with return of corpus, you invest a lump sum of money with an insurance company or financial institution.
In return, you receive a guaranteed monthly or annual income for the rest of your life.
Upon your death, the original investment amount, known as the "corpus", is returned to your designated beneficiaries.
Key Features:
- Guaranteed Income: The pension provides a fixed or variable income stream that is guaranteed for life.
- Return of Capital: The original investment amount is returned to your beneficiaries upon your death.
- Longevity Protection: The pension provides income for your entire lifetime, regardless of how long you live.
- Tax Benefits: Depending on the specific product and your location, you may receive tax benefits on the income and/or the return of capital.
Example:
Let's say you invest $100,000 in a life pension with return of corpus. The insurance company guarantees you a monthly income of $1,000 for life. When you pass away, your beneficiaries will receive the original $100,000 investment back.
Benefits:
- Security: Provides a guaranteed income stream, ensuring financial stability in retirement.
- Longevity Protection: Guarantees income for your entire lifetime, eliminating the risk of outliving your savings.
- Legacy Planning: Allows you to leave a financial legacy for your loved ones.
Considerations:
- Lower Initial Income: The return of corpus feature typically results in a lower initial income compared to a traditional life pension.
- Investment Risk: The investment is subject to the financial stability of the insurance company or financial institution.
