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Types of Annuity Plans: How to Choose the Right One?

dateKnowledge Centre Team dateOctober 07, 2022 views234 Views
Types of Annuities | How to Choose the Right Annuity Plan

Annuities are a type of investment that can provide income during retirement. Annuities are important, as they provide a guaranteed stream of income that can last for years or even decades. This can be especially helpful for retirees who are worried about outliving their savings. There are many different types of annuities, and they can be purchased from insurance companies, banks, or other financial institutions. So, which annuity is the right one for you?

What is an Annuity Plan?

An annuity is a financial product that pays out a fixed stream of payments to you, typically for a certain number of years. The most common type of annuity is a retirement annuity, which pays out a fixed sum of money each month after you reach retirement age.

The first stage of an annuity contract is the accumulation stage, during which you contribute money to the annuity. The second stage is the annuity stage when you start receiving payments from the annuity.

Types of Annuities in India

There are several types of annuities in India. Some of them are listed below:

1. Life Annuities:

A life annuity pays a specified amount of money to you for the rest of your life.

2. Immediate Annuities:

An immediate annuity pays a specified amount of money to you immediately.

3. Deferred Annuities:

A deferred annuity pays a specified amount of money to you in the future, typically after retirement.

4. Fixed Annuity:

A fixed annuity is an insurance contract that promises to make periodic payments to you, starting immediately or at a future date. The payments are fixed, meaning they do not change over time.

5. Variable Annuity:

A variable annuity is a type of annuity that does not have a guaranteed rate of return. The return on a variable annuity depends on the performance of the underlying investment, which can be a basket of stocks, bonds, or other assets.

6. Growing/Increasing Annuity:

A growing annuity is an annuity in which the payments increase at a fixed rate over time. The payments may increase at the same time each year, or they may increase at the end of each payment period.

7. Limited Annuity:

Pays income for life, but in case of your unfortunate demise, before the annuity pays its last rupee, the annuity company keeps any leftover money.

Recommended Reading - Annuity Vs Lump Sum

Four Main Types of Annuity Plans

1. Immediate Fixed Annuity:

An annuity that provides fixed payments to you starting as soon as the annuity is purchased.

2. Immediate Variable Annuity:

An annuity that provides payments to you starting as soon as the annuity is purchased, but the amount may vary depending on the underlying instrument and market conditions.

3. Deferred Fixed Annuity:

A deferred annuity pays a specified fixed amount of money regularly starting a few years after investment.

4. Deferred Variable Annuity:

A deferred variable annuity also starts paying you a few years after the investment, but the amount may vary depending on:

a. The underlying instrument and market conditions
b. The fixed rate of growth for a growing annuity

FIXED VARIABLE
IMMEDIATE Type 1: Immediate Fixed Pros

1. Start receiving income immediately

2. Know the amount you'll receive in pay out

Cons:

1. May end on death

2. May not beat inflation;

Type 2: Immediate Variable Pros:

1. Guaranteed lifetime income

2. Opportunity to benefit from market growth

Cons:

1. Unpredictable monthly payments

DEFERRED Type 3: Deferred Fixed Pros:

1. Payment timing can be pre-decided;

2. Tax-deferred growth during the accumulation phase;

3. Not affected by market movement

Cons:

1. Early-withdrawal penalties may apply;

2. It May not beat inflation

Type 4: Deferred Variable Pros:

1. Tax-deferred growth during the accumulation phase;

2. Opportunity to benefit from market growth

Cons:

1. Early-withdrawal penalties may apply;

2. Unpredictable pay outs

Which Annuity Plan to should you Choose?

The best annuity plan for you will depend on your individual goals and financial situation. Consider the following factors when choosing an annuity plan:

  • Your age
  • The type of annuity you want
  • Your investment goals Your risk tolerance
  • Your financial situation

Your age will play a large role in the type of annuity you choose. The type of annuity you choose will also depend on your investment goals. If you are looking for immediate income, you may want to choose an immediate annuity. If you are looking for long-term growth, you may want to choose a deferred annuity. Your risk tolerance will also play a role in the type of annuity you choose. If you are willing to take on more risk, you may want to choose an annuity with a higher rate of return.

Must Read - Passive Investing

Canara HSBC Life Insurance offers both deferred and immediate annuity plans. You can also use ULIP, and savings plans to save and then receive an annuity from them upon retirement. Here’s a list of plans to choose from to meet your annuity goals:

1. Pension4Life Plan



  • Options to have immediate or deferred annuities
  • Guaranteed Pension
  • Option for joint life annuity which continues until one partner is alive

2. Smart Lifelong Pension



  • The plan continues until 99 years of age
  • Pay premiums till 60
  • Build corpus and draw pension using systematic withdrawal option
  • Increase or decrease sum assured as you grow
  • Use as a legacy plan

Must Read - Defined Benefit Pension Plan

3. Invest 4G



  • Invest in a portfolio of equity and debt
  • Automatic portfolio management
  • Bonus additions for long-term investors
  • Stay in up to the age of 99
  • Use as a retirement corpus builder, pension, and legacy plan
  • Systematic withdrawals and limited investments till 60 years of age
  • You can increase your withdrawals as per inflation
Unit Linked Insurance Plans | ULIP

4. iSelect Guaranteed Future



  • Guaranteed benefits – maturity and bonuses
  • Long-term investors enjoy better growth
  • Guaranteed income available after completing the premium payment term
  • Stay in the plan until the age of 80

Know more about iSelect Guaranteed Future.

Annuities are important because they provide a guaranteed income stream for a set period. This can be helpful for retirees who want to know they will have a certain amount of money coming in each month. An annuity can be a good idea for retirement income if it is part of a well-diversified retirement plan. Annuities can provide a guaranteed income stream in retirement, which can help meet basic living expenses.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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