A significant portion of India's working population faces difficulties in setting up a well-organized retirement plan that includes timely savings and investment. So many people retire with less than sufficient securities and look for meaningful schemes or plans to invest their savings in and grow their money. There is a practical demand for financial products that could usher in a regular income channel for retired investors and help them live the rest of their lives without experiencing financial distress.
Annuities are the quintessential investment product that meets this demand beautifully. The purpose of this plan is to provide financial coverage for people who have certain risks that may exceed their means and are not covered by their insurance carrier.
The most significant annuity in India is an insurance contract that allows individuals to convert a lump sum amount of savings into a guaranteed stream of income, distributed in a series of cash flows over a phased period. Other channels of annuity may include deposits to savings accounts, mortgaging one’s home and getting monthly payments against it, or a separate pension annuity plan.
When opting for annuities, the first thing that the “annuitant” needs is to create a regular income flow that will substitute for his or her present regular income. While annuities do not cover life insurance, they offer a guaranteed steady income for the lifetime or a stipulated duration. Below is a detailed guideline as to how it works:
An annuity is an investment product that works with 1) an initial one-time lump-sum investment or 2) a series of contributions paid over a due course of time.
Similar to employer-sponsored retirement plans or 401(k) plans, annuities allow annuitants to begin taking withdrawals after the age of sixty-nine or fifty, with the funds maturing tax-deferred.
Annuitants can enjoy tailored aspects for each annuity plan, where they have the freedom to decide the time to annuitize their investment. They can start getting paid with immediate effect or let it grow at a future date with a deferred annuity. The amount is eligible for monthly, quarterly or annual payments. The tenures could range from 5 to 15 years or lifetime payments.
Securing a lifetime of payments can reduce the amount of each check depending on the type of annuity and the length of disbursements, but it also helps ensure that you do not outlive your assets, which is one of the key selling advantages of annuities.
Prioritising the typical patterns in elderly living, involving medical expenses, household expenses, travelling, rentals, gifts and personal security, the different types of annuities offer different means to figure out how one gets access to their own money, what the amount and for how long. While it is not the plan to secure capital gains, it is the best way to convert current money value for a higher future income. Below is a detailed guide to all the different types of annuity plans available in India.
Types of Annuity Plan |
Details |
Based on Payout Initiation of Time |
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Immediate Annuity |
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Deferred Annuity |
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Based on Payout Duration |
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Lifetime Annuity |
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Period Certain Annuity |
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Based on Payout Types |
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Variable Annuity |
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Fixed Annuity |
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Increasing Annuity |
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Annuity with Return of Purchase Price |
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Based on beneficiaries |
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Single Life Annuity |
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Survivor/ Joint Life Annuity |
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Annuity is not for everyone. The benefits are particularly designed for people who need a steady income stream by reworking their savings, practically supporting a more predictable future. While sudden medical emergencies and household expenses can be widely covered under insurance, this is the second income stream that particularly attends to a definite amount of expenditure.
You may keep receiving regular income after retirement by just investing your lifetime earnings in an annuity plan. This enables you to place your savings in a plan that, even after retirement, will easily cover your ongoing expenses.
Compared to any other investment plan, annuities are the safest. Almost like a savings plan, it tends to grow your money. Annuity plans provide a means of both adding more regular income and a safe-keeping corpus for investors with a long-term focus who wish to develop a stable portfolio.
Unlike government programmes like the Senior Citizens Savings Scheme (SCSS) and Post Office Monthly Income Scheme (PO-MIS), the best annuity plans have no investment limits.
Annuitants have a greater advantage than other types of investors since they enjoy greater control and command over their risk profiles. The invested funds are managed according to your preferences and safeguarded until you are prepared to take them out. Having that kind of money saved for the future can provide you with a great deal of financial security in times of need and retirement.
The annuitant decides how they get paid. Whether you opt for a series of monthly payouts, like a monthly pension, invest your money in mutual funds for a higher return, or choose to withdraw the benefits at a later stage of life, your money stays yours, without worrying about losses. Additionally, depending on their preferences, investors can select whether to receive fixed or variable benefits from the plans.
Taxes do not need to be paid on your investment until you begin taking payouts. Annuities are subject to taxes in a manner akin to that of regular income.
You are also providing your spouse with an income in the event of your death when you choose a joint annuity policy. In these annuity plans, if the principal investor dies during the investment period, the insurance company continues to process the annuity payouts to the surviving spouse.
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