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As per the RBI reports, 50% of Indians above 65 years of age seem to be dependent on their children instead of their own wealth. With rising living costs, increasing medical inflation, and higher life expectancy, individuals must make proper post-retirement plans to curtail their financial burden.
To that end, one of the common modes of financial planning available in India is an annuity plan. If you plan to invest in annuities and know everything starting from the meaning of annuity and benefits, you might consider reading through the following piece.
Annuity insurance is a long-term investment agreement between a policyholder and the insurance company, wherein the former makes payment in a series of instalments or lump sum. In exchange for this, he or she receives regular disbursements of income post-retirement either immediately or after completing a specific tenure.
These plans offer a host of benefits to unemployed individuals or retired personnel. They might be tailor-made to suit a policyholder's needs.
Further, in case of unfortunate circumstances such as the death of a policyholder, his or her nominee gets to obtain benefits.
Now that you know what an annuity means, let's check out the different types of annuities.
Generally, insurance companies offer six types of annuities. They are as follows -
There is no accumulation phase in this type of annuity plan. The plan starts offering benefits right from the beginning of investing. However, a policyholder needs to make a lump-sum investment for this type of plan.
Individuals can obtain benefits after the completion of an accumulation period. There are two sections under this plan- the accumulation phase (period during which a policyholder starts investing by making payment on the policy initiation date to start accumulating a retirement fund) and the vesting period (period during which an individual starts receiving benefits).
Under this plan, an annuitant receives funds regularly. Furthermore, the companies can also make payments in a phased manner from time to time towards the end of the 5th, 10th and 15th years of investment.
Some annuities come with an option of a single amount payout. However, one cannot receive the full retirement advantage as a single amount. For instance, in the case of NPS, account holders must mandatorily buy annuities with 40% of the accumulated sum aggregate.
Under this type, the income generated from the investment depends on the payout stream determined by the performance of the plan's underlying assets.
As the name suggests, payouts remain constant during investment tenure under this annuity type. Generally, in these plans, insurance companies put resources into fixed pay instruments. Therefore, one can expect steady returns post-retirement by opting for this plan.
Besides learning about what is meant by an annuity, types of annuity, you must also know how it works?
Here is the working of annuities explained in a step-by-step manner -
Now, let's focus on the reasons to buy an annuity plan.
Here are the reasons why one should opt for annuities -
In this regard, let's take a look at some benefits of annuities in the following section.
Here are some lucrative benefits of investing in annuities -
Before you choose an annuity policy, you must factor in some key parameters that will help you make an informed decision. The factors are -
Considering the safety aspect is paramount in case of these investments as these plans are long-term financial products. In such long-term investments, several factors, such as decreasing interest rates, inflation etc., can affect the returns you receive.
Some insurance companies are conservative in terms of providing payouts. They retain a chunk of earnings as reserves for contingencies. This can be difficult for senior citizens whose daily expenses depend on annuity returns. Therefore, one must consider reading through the terms and conditions before selecting an insurance company.
This is another factor that individuals must take into account before choosing a plan. As these products do not generally possess easy liquidity like other financial options, financial contingencies can drive customers towards such an option.
Some of the annuity examples in India include Pension Guaranteed Plan, Immediate Annuity Plan etc.
Now that you know everything about annuity plans in India from the section mentioned above, you can apply for one at your convenience.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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