In Indian context, an annuity is a contract between two parties, one being the insurance company and the other being the buyer (i.e., you). It isa series of equal payments that are made at regular intervals of time.For example, if somebody invests Rs. 5000 per month for 30 years of his working life, his investment fund would be 5000*12*30= 18lacs plus interest. On this portfolio, he can buy annuity for rest of his life as pension.These payments can be made monthly, quarterly, annually. It is a popular choice among people who want a steady income after retirement.
There are two types of annuities based on the timing of the payout – Immediate and Deferred.
In deferred annuity, money is invested for some period before payments are made.It can be chosen by individuals who are working and still have some years of work before retirement.It may also come with a “life cover” which implies that in case of death of the policyholder, a lump sum amount is paid to the nominee.
In immediate annuity, you start receiving payments as soon as the initial investment is made. If you are approaching retirement age, then this is the type of annuity to opt for. So, deferred annuity accumulates money while immediate annuity pays money.
You can convert deferred annuities into immediate annuity if you want immediate payments.
Depending on the investment type, immediate annuities are further classified as fixed and variable. When the payout made to the customer is a fixed sum for a certain number of years, it is called a fixed annuity or annuity certain.In guaranteed period annuity, the period for which the payment will be made is decided. Even if the policyholder dies, payments are made to nominee for the remaining years. If the individual survives the tenure, they receive the payout for the rest of their life.
When the payout varies depending on the type of investment or market performance, it is a variable annuity.
Advantages of Annuity
The amount invested in annuity is not taxed, but the earnings received on withdrawal are taxable. There is no contribution limit for annuity and the payout is guaranteed for life. Also, annuity plans allow you to accumulate larger amount of cash and defer paying taxes.
Disadvantages of Annuity
Low returns on the amount invested, impact of service tax and lack of liquidity due to annuity being a long-term contract, are some of the disadvantages of annuity plans. Apart from these, insurance companies may charge a high commission fee. There may be high annual expenses, investment management fees and fees for riders, if any. In case you decide to pull out your money from annuity, you may have to pay for surrender charges as well.
Best annuity plans of 2016-17
Regular and guaranteed income after retirement, tax benefits, choices of frequency of payout are some of the common benefits of all the best annuity plans in India. Mentioned below are unique features and benefits for some annuity plans:
- BSLI (Birla Sun life India) Immediate annuity plan: You need not undergo a medical test to opt for this plan
- Reliance immediate annuity plan: This is a single premium plan which allows you to leave some funds for your dependents. You have the option to convert your earnings into income.
- HDFC Life New Immediate annuity plan: Choice of annuity options and death benefit
- SBI Life annuity plus plan: Regular income from the age of 40 and option to add riders
- ICICI Pru Immediate annuity plan: One-time investment with payout options for life;Joint life cover, last survivor option
- Max Life guaranteed lifetime income plan: Applicants within 50-80 years of age can apply:
- Available in single life annuity for life, with and without death benefits;
- Available in joint life annuity for life, with and without death benefits
- Aviva Annuity Plus: Option to receive higher annuity payout by enhancing purchase price during inception
- Bajaj Allianz Retire rich plan: Option to changethe premium paying term any time; -Guaranteed death benefits
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