What is Annuity
An Annuity is a contract with an insurance company, obligating them to make payments to you immediately or in the future. In return for a lump sum payment or a series of installments, you receive a fixed amount for the rest of your life.
What are the Features of Annuity
Annuity plans have several important features, such as:
Financial Security
Annuity plans ensure you receive a lifetime income, promoting financial independence throughout your retirement.
Flexibility
These plans give you the flexibility to select your preferred income distribution. You can opt to receive payments monthly, quarterly, half-yearly, or yearly. Some annuity plans let you pay premiums every month, every six months, every year, or all at once, whichever suits you best.
Safe Investment Option
Annuity plans offer low-risk options that aren't tied to the market. The amount you receive is guaranteed and remains fixed when you purchase the plan.
What are the Various Types of Annuities
Here are a few Types of Annuities given below:
Immediate Annuity Plans
The plan commences directly from the vesting phase without an accumulation phase. It is acquired with a lump sum, and annuity payments begin immediately, either for a fixed period or a lifetime.
Deferred annuity
The plan commences directly from the vesting phase without an accumulation phase. It is acquired with a lump sum, and annuity payments begin immediately, either for a fixed period or a lifetime.
Fixed Annuity
In simple terms, a fixed annuity plan ensures you receive a predetermined guaranteed amount throughout the policy's duration. This guaranteed (1) sum is established when you buy the policy and remains unaffected by market changes.
T&C Apply (1)
Variable Annuity
A variable annuity plan involves investing your premiums in instruments like mutual funds or equities. Payouts from these plans are contingent on the performance of the fund in which your money is invested. If the fund performs favorably, you'll receive higher returns, and conversely.
What are the benefits of different types of Annuities
The benefits of the various types of annuity plans are outlined below, aiding in the selection of the most suitable option for your financial requirements.
Benefits of Immediate Annuities
Immediate Payouts
Immediate annuity plans provide guaranteed payouts immediately upon purchase. If you require immediate income, these annuity plans may be suitable for you.
Protection Against Market Volatility
Market fluctuations do not impact immediate annuity plans, as they provide a fixed payout.
Tax* Benefits
Under Section 80C of The Income Tax Act, 1961, immediate annuity plans provide tax benefits on the premiums paid under the policy.
Guaranteed (1) Income Stream
Immediate annuity plans ensure you receive guaranteed income for your retirement, promoting financial independence during that period.
Benefits of Deferred Annuities
Tax-deferred Growth
Deferred annuities enable tax-deferred growth on earnings, postponing taxation until withdrawals are made, thereby shifting the tax burden to a later stage in life.
Tax* Benefits
Under Section 80C of The Income Tax Act, 1961, deferred annuity plans provide tax benefits on premiums paid under the policy.
Guaranteed (1) Income Stream
Like immediate annuity plans, deferred annuities also ensure you receive guaranteed income for your retirement. They furnish a stable income source for your post-retirement objectives, fostering financial independence during retirement.
Tax* Benefits
Under Section 80C of The Income Tax Act, 1961, deferred annuity plans provide tax benefits on premiums paid under the policy.
How do Various Types of Annuities Work?
Annuities furnish you with a steady retirement income throughout your lifetime and present a range of options tailored to your retirement requirements. Here’s how they function:
Life Annuity with return of Purchase Price
Regular annuity payments will be received until your demise, at which point the insurer reimburses the initial amount used to buy the annuity to your nominee. This option suits individuals aiming to leave a legacy.
Life Annuity
The scheme will provide you with regular annuity payouts (monthly, quarterly, or yearly) throughout your lifetime. However, the annuity payments cease upon your death.
Inflation-indexed Annuity
Every year, the annuity payable will increase at a certain rate, such as 2% or 5%. Although it may not be directly tied to the actual inflation rate, the purpose is to mitigate the rise in expenses to some degree.
Joint Life Survivor Annuity
The annuity continues to pay out as long as either you or your spouse is alive.
A Joint Life Annuity with Return of Purchase Price
The annuity continues payments while either you or your spouse is alive. If both pass away, the nominee receives the initial invested amount.
Who Should Purchase an Annuity Plan
If you seek a guaranteed income for life, particularly after retirement, you should contemplate purchasing an annuity plan. An annuity plan aims to secure financial independence during retirement when your regular income ceases. The payouts from an annuity plan can be utilized to cover your retirement expenses and fulfill post-retirement aspirations, including travel, entrepreneurship, hobbies, and more.
When is the optimal time to purchase an Annuity Plan
Annuity plans offer flexibility for initiating investments according to your preference. As retirement approaches, you may possess a substantial savings sum you wish to invest. Certain annuity plans permit the investment of a lump sum, with income disbursal commencing as early as the subsequent year after plan purchase. Alternatively, you can opt to receive income at a later age.
If you are in your early earning years, you might prefer to invest smaller amounts regularly into your annuity plan. Certain annuity plans allow for regular investments and deferred income for retirement, enabling you to contribute manageable sums. Initiating investment in an annuity plan as early as feasible is crucial.
What are the Benefits of Annuity Plans
Multiple options to choose from
This flexibility allows you to select a plan that aligns with your needs. You can opt for the single life option to secure income for life, or choose the joint life option to include coverage for your spouse. Additionally, you may decide to receive the purchase price back after a specified period. Annuity plans offer various options to tailor the plan according to your requirements.
Tax Benefits
The premium paid upon purchasing the plan qualifies for a deduction of up to ₹ 1.5 lakh under Section 80C of the Income Tax Act, 1961.
Lifetime source of Income
A key feature of an annuity plan is its provision of regular income throughout your life, extending beyond retirement.
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Tax Benefits
The premium paid upon purchasing the plan qualifies for a deduction of up to ₹ 1.5 lakh under Section 80C of the Income Tax Act, 1961./p>
What is the Surrender Period?
The surrender period commences immediately after the purchase of an annuity plan, during which withdrawals are not permitted. Attempting to withdraw funds before the surrender period concludes typically results in a penalty.
Usually, the surrender period for annuity plans ranges from 6 to 8 years, although this may vary based on the selected policy and insurer. After the surrender period concludes, the policyholder has the option to surrender the policy entirely or partially and receive the policy’s asset value without incurring any surrender charges.
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