Annuity plans can be one of the best ways to secure a regular income in retirement. Also, they offer a variety of annuity options to choose from depending upon how they work and the investor’s needs.
Today everyone is concerned about the stress of their finances due to rising inflation and healthcare costs. Additionally, higher life expectancy means a longer retirement that can put undue stress on your savings. In such a scenario, you can consider investing in a good annuity plan that can guarantee you a fixed income long after you retire.
Annuity
An annuity plan is a type of non-linked and non-participating life insurance where the insured person generally invests a lump sum amount and gets regular payment for life. The insurance firm further invests the money of the investor, also called annuitant, to generate returns that are used for regular annuity payouts.
The annuitant can choose the frequency of the annuity payment that can be monthly, quarterly, or annually.
Different Types of Annuity
Annuity plans in India can be classified into two different types.
1. Immediate Annuity Plan
These are the plans where the annuity payout commences immediately after purchasing the plan. The annuitant starts getting a pension that continues for a lifetime or a predefined period as per the plan.
Such plans do not have an accumulation phase or a waiting period.
2. Deferred Annuity Plan
The pension in a deferred annuity plan begins after a certain date. Such plans constitute two phases:
3. Accumulation Period
It is the phase when you keep accumulating cash by investing in a particular plan through regular premium payment.
4. Vesting Period
It is the phase from which the annuitant starts getting regular pension and other policy benefits if any.
How Do Annuities work?
Whether you plan to get an immediate annuity plan or a deferred annuity plan, the pension payouts work in any of the following ways according to the plan you choose.
1. Fixed Lifetime Pension
The annuitant will get a fixed pension regularly as long as he is alive. The pension will stop after the death of the annuitant.
2. Life Annuity With Annual Rise in Pension
The pension payment conditions remain the same as above, but the pension amount will be increased every year at a predefined rate such as 2- 5%.
3. Lifetime Pension With Return of Purchase Price
The annuitant will receive a fixed pension income till his death, and the purchase price will be returned to the nominee of the annuitant. The annuitant can choose between 50% or 100% return of the purchase price.
4. Pension for a Predefined Period
In such plans, regular pension is paid to the annuitant but for a defined period, say 5, 10, or 15 years, after which the pension payment is stopped.
5. Joint-Life Annuity
Such plans provide regular pension until any of the spouses are alive. The annuity stops only after the demise of both spouses.
6. Joint-life Pension With Return of Purchase Price
The pension payment rule is the same as that for a joint-life annuity, but here, the purchase price will be returned to the nominee of the annuitants.
While post-retirement concerns can comprise many things such as preserving your capital, spending on medicines, other expenses, etc. a life insurance annuity can help you in building a regular stream of income that can provide you with peace of mind.