Annuity Plans: Right time to invest, Advantages and Disadvantages

In simple terms, annuity plans allow one to receive payments regularly for a lifetime after investing a lump sum amount. The company further invests the investment, and the investor is paid with the generated returns.

Invest in the best annuity policies, and you will be able to safeguard the future for your spouse, your children, and your family.

Advantages of Annuity Plans

No Cap of Investment:

When it comes to annuity plans, there are as such no investment caps.

Removes Reinvestment Peril:

One of the essential benefits that annuity policies offer is that there is certainly no scope of any reinvestment risk. In India, we are likely to see the interest rates, which are at a lower side; the risk is that when one wants to reinvest a principal amount, you will most likely end up getting a lower rate of interest. Moreover, the short-term tools, for instance, POMIS(Post Office Monthly Income Scheme) have reinvestment risk. However, when you invest in an annuity policy, it is guaranteed that you will receive the payout for a lifetime.

Sense of Financial Security:

Annuity policy assures you in terms of finance for a life where you will receive every month. The insurance company takes on the danger of how to move ahead with the monetary features until you are living and not worry for the future. Besides, one can opt for the recurrence of the premiums, and then choose to obtain payout, which is fixed at a specified interval of time, which could be monthly, quarterly, semi-yearly or annually.

Disadvantages of Annuity Plans

The annuity plans do allow guaranteed sum, which also provides confidence and security to the retirees; however, it has several disadvantages listed below:

Simple Interest:

The annuity policies use the simple interest, whereas tools like the Senior Citizens Savings Scheme (SCSS) does use compound interest every quarter.

No Premature Withdrawal:

Annuity plans do not allow premature withdrawals. Premature withdrawals are permitted in investment tools such as SCSS and POMIS. For instance, when it comes to the SCSS policy, you can withdraw the money after a year by making the payment as a fine. Hence, if you are looking forward to obtaining the principal amount, an annuity policy will not be of much help nor will be an option.

Low Rate of Return:

The returns on the annuity policies every year are not very attractive when compared to several other products, which likewise gives low returns.

No Inflation Fight:

Most of the investment plans do not fight inflation. Also, the jump in price is not limited to the age of retirement or so. Hence, it is reasonable to study the effect of inflation before you plan for retirement.

No Access to Capital:

In India, annuity policies are not an affluent instrument choice as the citizens mostly want to get capital, which is not possible in the case of an annuity policy.

So, the next time you want to buy an annuity plan, examine and analyse all the aspects before you buy one.