Calcutta, Nov. 7: Equity-linked annuity plans may soon make their way into the domestic insurance market.

The insurance regulator has set up a six-member panel to examine the current status of annuity products being sold by life insurance companies in the country and the steps needed to introduce variable annuity products. The committee will submit its report before January 31, 2010.

“The committee will address various risks attached with such products and how these risks should be measured and mitigated,” IRDA said in a statement.

Annuity is a financial contract in the form of an insurance product under which the insurer promises a stream of payments to the buyer during his/her lifetime.

These annuities can be deferred — payable in future after the buyer attains a certain age — or immediate — the payments begin immediately upon purchase of the annuity plan.

In the case of a deferred annuity plan, the policyholder pays premium over a pre-defined accumulation period after which the annuity payment by the insurer begins.

In an immediate annuity plan, the policyholder pays a lump sum and the annuity payments follow immediately thereafter.

As of now, the annuity products available in the country are fixed income contracts. This means that once you buy an annuity plan, the amount of annuity payable over the lifetime of the policyholder won’t vary.

Annuity is thus a pension like income and hence it is considered as a retirement planning product.

In fact all pension schemes, such as those of life insurance companies and the New Pension Scheme, come with the clause that the investor will have to buy annuity with at least two-thirds of the fund value accumulated during the premium paying term (till one attains the age of 60 in case of NPS).

“Given the population growth and the need for a proper pension system, the annuity business has tremendous potential in India. We plan to introduce variable annuity products,” the insurance regulator said.

The variable annuity product will invest in equities and pay a variable rate of return. At present, premium collected under annuity products are invested only in debts.

According to IRDA, internationally, countries are moving towards variable annuity products which give a lot of flexibility to insurers in offering products to meet customers’ demand and also address all consumer related issues.

The committee includes Munich Re chairperson Peter Akers, Aegon Religare’s K.S. Gopalakrishnan, ICICI Prudential Life’s Avijit Chatterjee, Max New York Life’s John Poole and Irda member secretary S.P. Chakraborty.