When it comes to secure retirement planning, annuity plans emerge as an ideal option for a reliable source of income. It is considered to be vital to understand a simple question: What is Annuity? An annuity basically means an amount paid to an individual. Annuity plans offer a secure & stress-free retirement period, ensuring a guaranteed, regular, & lifelong source of income. An annuity plan can be chosen depending on the requirements of the family & investment horizon.
Hence, an annuity plan is a contract agreed upon between an insurance company & an annuitant, according to which a regular payment is made throughout the annuitant’s retirement tenure. This guaranteed pension amount will help you achieve your life objectives & provide financial security for your family members.
Features of Annuity Plans
Provided are the features of Annuity plans:
• Annuity Options
This plan comes with a variety of options, & one can choose a plan according to one’s needs & preferences. The different plans available are:
I. Single Life Annuity Plan
II. Joint Life Annuity Plan
III. Joint Life Annuity with Waiver of Premium
IV. Annuity with Return of Purchase Price
• Regular Income Stream
This plan offers a regular income stream throughout your life at a fixed rate, thus helping to fulfil your retirement needs.
• Pension Payout Options
This plan is flexible as it provides options to pay the premium amount monthly, quarterly, half-yearly, or yearly.
• Flexibility in Purchase Price
This plan also offers flexibility in the purchase plan chosen, which means the modes available are either contributing regularly over a period of time or in a lump sum amount.
• Guaranteed Income
This plan assures receipt of regular & guaranteed payments for complete life tenure.
• Nomination Facility
This plan also comes with a nomination facility.
• Transparency & Disclosures
This plan does not have any fees or hidden charges.
• Tax Benefits:
The payout will be received on a regular basis once the plan matures, but the taxes on payouts are deferred.
• Taxation on Income Received
The annuity income is taxable as per the income tax slab under the Income Tax Act. 1961, according to the chosen old or new regime.
Different Types of Annuity Plans
Provided are the different Annuity Plan types:
• Based on Payout Initiation of Time
I. Immediate Annuity
A regular source of income can be received on an immediate basis once the purchase price is paid.
It best suits individuals who want to receive a regular source of income.
II. Deferred Annuity
Under this plan, an individual is required to make a regular contribution during the accumulation phase for a specified period of time. The payouts are received from the date as you specified, for example, retirement.
This plan includes an accumulation of funds along with the growth of funds before the payout starts.
• Based on Payout Duration
I. Lifetime Annuity
With this plan, you get a regular source of income with annuity rates for your entire life.
This means you get regular payments till you are alive.
Thus providing financial security for your entire life.
II. Annuity Certain
With this plan, get a fixed source of income, a high annuity rate for a specific time period, irrespective of life tenure.
Under this plan, get a certain specified & pre-determined number of payments, i.e. monthly, quarterly, semi-annually, or annually, for the pre-determined tenure.
• Based on Payout Types
I. Variable Annuity
This plan allows for switching between the funds depending on the provided factors:
Market conditions
Risk Acceptance Level
Investment Objective
Annuity Payments
II. Fixed Period Annuity
Here, under this plan, the payments are received for a pre-determined period, where if you die before the completion of the aforesaid period, the payments would be received by your nominees in that case.
III. Increasing Annuity
With this plan, you get an increase in income at high annuity rates over a period of time.
The amount keeps on increasing either according to the inflation factor or at a fixed rate.
Hence, ensuring the ability to deal with the rising standard of living.
IV. Annuity with Return of Purchase Price
Under this plan, the purchase price is returned to the nominees on the death of the annuity holder.
This ensures the safety of your initial investment amount, so it is not lost.
• Based on People Benefiting
I. Single Life Annuity
With this plan, you get a regular source of income at a high annuity rate throughout the post-retirement period.
This plan offers options, such as Life annuity or Life Annuity with return of purchase price.
II. Survivor/ Joint Life Annuity
With this plan, two individuals can enjoy the plan jointly, in most cases, spouses.
The payment would be received till any of them is alive, ensuring the surviving member still receives the payment even after the death of the main annuitant.
Steps to Buy an Annuity Plan
Provided are the steps to buy an annuity plan:
Step 1: Choose an Annuity Plan
Select the type of annuity plan you want to purchase depending on the requirements, frequency of payout, or any other desired feature.
Step 2: Pay the Premium Amount
Once the annuity plan is chosen, the premium has to be paid, which will depend on the type of plan chosen, age factor, desired payout amount to be received, etc.
Step 3: Vesting Age
Decide on the vesting age, which means the age at which you want to start receiving the income earned from this plan.
Step 4: Annuity Payout Options
Decide on the annuity payout option, i.e. frequency & duration of payment, which can be monthly, quarterly, semiannually or annually.
Step 5: Start getting Payments
You will start getting regular payouts from the insurance company once the vesting age is reached, according to the frequency & duration decided.
Step 6: Additional Features
Consider all available annuity plans with different features.
Conclusion
One can consider this plan if they are close to retirement & looking for stability, a diversified income, or a conservative investor wants to have a secure future.
