What are Annuity Plans?
Before we get to the main part of the article, let’s quickly touch upon the concept of annuity plans.
The word ‘annuity’ here refers to a string of payments made at regular intervals. In the context of life insurance, an annuity plan is a contract between an individual and an insurance service provider and the annuity is guaranteed from the period mentioned in the policy depending upon the option chosen.
Here, the individual agrees to make either a lump sum payment or multiple smaller payments for a specific period of time to the insurance service provider. And in return, the insurance provider agrees to pay a steady stream of income regularly to the individual, starting either immediately or at a later point in time as per the plan’s terms & conditions.
Annuity plans provide a steady stream of income to the individual till the time of their demise. There are many options in annuity, and depending on the option chosen, either a lump sum amount or periodic income is paid out. And upon the death of the individual, the insurance provider shall return all or part of the purchase price to the nominee listed under the annuity plan, based on the terms and conditions of the annuity option chosen.
When to start Annuity Plans?
Since annuity plans provide a regular source of income to an individual, they’re suitable for post-retirement use cases. However, delaying the purchase of annuity plans till the time you reach your retirement age may not be a wise idea.
The optimal time to begin annuity plans is as soon as you achieve the minimum age limit specified in the plans. Typically, most annuity plans have an entrance age of 40 or 45, however this might vary based on the plan and the kind of annuity you pick. One of the reasons why you may opt for an annuity plan as soon as you become eligible has to do with the fact that you may get a good enough head start when it comes to creating a regular stream of income for yourself.
Any windfall gains or lump sum amount that you already have may be invested in an annuity plan as soon as you become eligible. This way, not only your investment remains safe and secure, but you also get to receive steady annuity payments. The annuity payments that you receive can either be reinvested by you in other investments to create more wealth or be used as a supplemental income.
On the other hand, if you don’t wish to receive annuity payments right away, there are annuity plans that allow you to defer the annuity payments to a later point in time. This allows you to invest in an annuity plan at a time when you have excess capital and receive the benefits when you absolutely need it.
Alternatively, what if you don’t have any windfall gains or lump sum amount lying around? Even then, you can invest in an annuity plan. This time, however, instead of opting for a lump sum payment, you could choose to make a series of small payments for a specified tenure. And once the premium payment tenure ends, you can choose to either receive it immediately or defer it to a different time.
What are the Types of Annuity?
Immediate and deferred annuities are the two types of annuities that you can choose from.
1. Immediate annuity
As you’ve already seen before, in an immediate annuity plan, the annuity payments start as soon as you pay a lump sum amount to the life insurance provider. Here, you can choose to receive the annuity payments in your preferred frequency - monthly, quarterly, semi-annually, or annually.
2. Deferred annuity
In a deferred annuity plan, on the other hand, the annuity payments don’t start immediately after you pay a lump sum amount. Instead, you can choose to receive the annuity payments at a later point in time. There are two distinct phases in a deferred annuity plan - the accumulation phase and the income phase.
During the accumulation phase, you either pay a lump sum amount or a series of smaller payments to the insurance provider or wait for your corpus to grow. And during the income phase, you begin to start receiving regular annuity pay-outs.
Annuity options
When you purchase an annuity plan, there are different annuity options that you can choose from. Let’s take a quick look at some of the common ones. Annuity options may vary from one plan to another.
1. Life annuity
In a life annuity plan, the annuity payments continue to be disbursed to the individual till the time of their demise. And upon their demise, the annuity payments will stop from thereon.
2. Life annuity with return of purchase price
In this type of an annuity plan, the payments are made to the individual till the time of their demise. Upon their demise, however, the annuity payments cease and the entire price that the individual paid to purchase the annuity plan is returned to the deceased individual’s nominee.
3. Joint life annuity
A joint life annuity plan is basically a plan that covers two individuals, i.e. spouses. Here, the annuity payments will continue to be made until either you or your spouse remain alive. Upon the death of both individuals, the annuity payments would cease.
4. Joint life annuity with return of purchase price
This is very similar to a joint life annuity plan, but with an extra feature of return of purchase price. Here, the annuity payments are made until either one of the spouses remains alive. Upon the death of both spouses, the annuity payments would cease, and the entire purchase price would be returned to the nominee listed under the annuity plan.
Conclusion
As you can clearly see from the above, an annuity plan is a financial tool that you can use to generate a separate source of income for yourself. That’s not all. With many different types of annuities for you to choose from, you also get complete freedom of choice as well. Also, it is always a preferable to consider investing in an annuity plan as soon as you become eligible for doing so. This will ensure that you get a good head start with respect to planning for your post-retirement life.
BJAZ-WEB-EC-00632/22
An ISO 9001:2015 
