Annuity plans benefit you in your post-retirement years. Here are some important terms to know related to these plans.
Retirement is a golden phase in one’s life, since it gives you the freedom of time to do all the things that you were too busy to do before. But it can also become challenging for those who have not planned their retirement years carefully. Those who have, on the other hand, are comfortably placed with options like annuity plans, savings and various mutual fund investments.
Annuity plans are excellent retirement pension options, and you can easily purchase the best one from a leading insurer in India. The following are 5 important terms you must know about annuity plans in India:
#1 Immediate annuity. This refers to a kind of annuity plan that pays the income on the plan immediately after the lump sum amount is invested. It is a sort of insurance contract where you can set aside a large savings fund for a while (typically, a month or two months) and then start receiving the pay-outs thereafter. The immediate annuity plan is a good one to invest in when you are close to retirement, and when you have a large sum of money to invest.
#2 Deferred annuity. This is an annuity plan that works in variance to the immediate annuity plan. Under the deferred annuity option, the first pay-out on the plan is paid when you elect to receive it, i.e. after retirement. It is normally of two types: Variable and Fixed. You can discuss your requirements based on your retirement goals and needs, with the insurance provider prior to investing.
#3 Non-participating, unit-linked pure pension plan. Plans with this nomenclature simply mean that they offer returns based on market forces. The plan is speculative in nature, though you can check its annualised return rate before investing. This annuity plan in India has a lock-in period of 5 years, during which it is not possible to withdraw or surrender the plan. Leading insurance providers offer this kind of annuity plan in India.
#4 Guaranteed income plans. As the name suggests, these are retirement plans that offer regular fixed income after a certain amount of time has elapsed on the policy. The pay-out options are monthly, quarterly, six monthly or annually, based on the plan features and the choice you make.
#5 National Pension Scheme (NPS). You may have come across the term ‘NPS’ while researching annuity plans in India. It is a voluntary pension scheme open to all Indian citizens between the ages of 18 and 60 years. The entire maturity corpus in the NPS is tax free, while 40% annuity is also tax free. It is one of the best tax saving instruments and annuity plans in India.