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Things you should know before starting an immediate annuity

Annuity is type of a life insurance product in which once you purchase, it starts paying you in regular instalments. In most life insurance plans, the insurance company secures you against the risk of dying too young while in an annuity plan, the insurer secures you with a fixed regular income to help you manage your expenses when you live long enough. In most life insurance plans, you make regular payments to the insurance company to get a lump sum of money at the maturity date or in the event of death the benefit is passed on to the nominee while in immediate annuity plan, a lump sum amount is to be paid by you up-front in return for regular income payments as long as you are alive or you and your spouse are alive (depending on the annuity options selected). As the name suggests, immediate annuity starts paying out immediately and therefore, this product is frequently opted by people who are retired or plan to retire in near future.

 Buying an annuity is a very good option for managing your retirement corpus. One of the most unnerving facts of retirement is that you would no longer be receiving salary or fixed income and have to live on the investments made so far. Thus in these situations, annuity plans are extremely valuable, so here are few things that you should know before buying an annuity plan.

Need for Annuity Plan: Few years ago most of the retirees used to rely on the fixed pension by the employer to take care of their retirement expenses but now many of the organizations are shifting to providing a lump sum retirement benefit to its employees rather than a fixed monthly sum. Thus the option of receiving monthly retirement benefit is disappearing. So now the retirees have to take care of funding their own monthly expenses, post retirement.

Thus a good way to manage this is an immediate annuity plan. Immediate annuity plans are designed in a manner that you receive annuity payouts at a frequency selected by you so that you can maintain your lifestyle and meet all the expenses even post retirement. Annuity plans helps in making you financially independent.

Let us know more about immediate annuity plans in India

Immediate annuity plans in India are generally non-linked and non-participating in nature.

Under this product, the individual has to pay a one-time premium installment for an immediate annuity either for single life or for two lives (this is meant to cover the spouse). Generally, insurance companies in India allow buying immediate annuity if one is above 40 years. One can start a lifelong annuity, commonly  known as pension for oneself, spouse or for aging parents.

All one has to do is invest a lump sum amount. After purchasing the immediate annuity plan, one can receive the first annuity installment after one month, three month, six months or one year after the date of purchase depending on the mode of annuity payment chosen.

However, if one is interested in enhancing the future income, one can even purchase a new annuity plan any time or every year based on his requirement of monthly cash flow requirement.

All you need to do is pay a single premium and thereafter your corpus plus earnings on it begin to get converted into a series of payments over a period of time for the duration of your/ spouse’s life time.

Some of the features of immediate annuity plans in India that you should know before starting an immediate annuity –

  • You can choose from a range of annuity options. Try to choose an annuity option which will suit you and your family’s future income needs
  • Some annuity plans offer life time annuity with increasing annual payouts
  • Lifetime Income – Under this annuity plan option, annuity is paid at a constant rate throughout the life of the annuitant. On death of the annuitant, there is no payout to be made.
  • Lifetime Income with Capital refund – Under this annuity plan option, annuity is paid at a constant rate throughout the life of the annuitant. 100% of the premium is refunded to the nominee on death of the annuitant.
  • Lifetime Income with Capital refunds in parts – Under this plan option, while the annuity is paid at a constant rate throughout the life of the annuitant, the premiums are returned in part due to the death of the annuitant during the term period. The refund percentage depends on the number of years (from the annuity purchase date) after which the death of the annuitant takes place.
  • Lifetime Income with Balance capital refund – Under this option while the annuity is paid at a constant rate throughout the life of the annuitant, the balance amount (premium paid  – total annuities received) is refunded to the nominee on death of the annuitant
  • Enjoy regular income from an early age, if so required. You can consider this if your current monthly income is not sufficient to take care of the fixed expenses
  • Flexibility to choose the payment frequency of immediate annuity – monthly, quarterly, half-yearly or annually. Choose the one which you think will be convenient for you.
  • Option to receive life time annuity for both, self and spouse
  • Most insurance companies offer incentive/ discounts in case of larger premiums (purchase price)
  • Option to buy riders with an annuity plan – Some life insurance companies allow you to buy riders like, accidental death benefit etc.
  • You can buy an immediate annuity plan online by registering with the insurance company website.

As you can see immediate annuity plans in Indiaoffersrange of options and flexibility. Immediate annuitycan be a suitable option to take care of your income needs during the golden years of your life. You should read the product document carefully and choose an immediate annuity plan  best suited to you and your family’s income and future needs. 

Post Author: Fathiyya Al Shaikh

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