An annuity plan is a kind of pension plan that offers the opportunity to invest for the long term. These plans are usually available as life insurance products. An annuity serves as a safety blanket when you are unemployed or don't have any stable income. So, it is useful as a long-term investment tool and perfect to finance your retirement. In this case, the plan acts as a source of regular income (such as monthly income).
Let's learn about the main types of annuities available as per different financial requirements and see how they offer a lifetime income opportunity. Here's a look.
Types of Annuity Plans
Immediate Annuity
In this kind of annuity plan, there is not much difference between the disbursal phase (the period when the payout is received) and the accumulation phase (the period during which you make payments for the plan).
A fixed annuity is a kind of immediate annuity. It provides guaranteed income after retirement to any individual who wishes to avail this scheme. A fixed annuity is a traditional and safe pension plan preferred by many people. As the name suggests, the payouts offered by the plan remain constant throughout the policy tenure. This can be a good source of monthly income in your golden years.
Although some annuities allow you to make withdrawals when you are diagnosed with a critical condition, some policies offer the investment amount to the nominee following the policyholder's death. Nevertheless, you can't prematurely withdraw the money invested in the plan unless it is needed in special situations.
Deferred Annuity
This kind of annuity has a major gap between the disbursal phase and the accumulation phase. If you begin to invest in this annuity plan when you are younger, you can get the advantage of age on your side in terms of planning and premiums. Any adverse effect of a bad investment can be readily absorbed. Also, you can easily change your plans and courses with the cushion of your age.
How to Choose a Suitable Annuity Plan?
An annuity plan offers a sense of financial security and is a useful instrument for long-term investment. To choose a suitable annuity, keep in mind your financial goals, the amount of corpus you wish to generate and the period over which you can invest. Depending on the kind of annuity and the particulars of disbursal, you can get a lump sum payment or periodic payouts (yearly, quarterly or monthly).
There are several factors that determine a plan's payout. For instance, if you want a monthly-income plan to finance your post-retirement period, you mainly have to consider two factors: your current age and the annuity tenure. If you wish to try any other investment plan for your retirement, you can consider a unit-linked insurance policy (ULIP). Whichever plan you buy, make sure to choose a renowned insurance provider in India. Go through all the investment options offered by the insurer carefully and check out their features and benefits to make an informed choice.
