All you Need to Know about Annuity Plan
Stepping into the second innings of life without financial worries is a dream. You get more freedom to explore your skills, follow your passions and cultivate new hobbies. However, people often forget to save for later.
Turns out; although intellectually we know that we will grow old, that future is not ‘real’ for many, according to researchers in human psychology. This can result in inadequate retirement planning. In fact, 50% of Indians above 65 years are expected to be dependent on their children by 2031, says an RBI report.
An annuity plan could be a great option as an income source for later years. This is a financial instrument that offers a fixed income for a stipulated period or the rest of your life. Experts suggest that you must consider buying the same depending upon when you require the payouts. Further, here’s a detailed guide on what is an annuity and how it works.
Annuity Plan
The investor is required to make a lump-sum contribution. The insurance company invests the money and provides generated returns. These are specifically designed to ensure a financially stable retired life. If you do not have a planned retirement corpus, you can buy an annuity almost immediately. If not, consider purchasing the best annuity plans in India close to your retirement.
Types of Annuities
There is a comprehensive range of annuity options to choose from. Have a look.
Immediate Annuity: This helps you create an instant income source. You begin receiving the money within the first year itself. These do not have an accumulation period. It is best to opt for this plan if you are nearing your retirement stage. There are two types here: Fixed and Variable. In the former, a fixed sum is handed over for a definite period. For the variable plan, the pay-out is likely to vary depending on market movements and the investment type.
Deferred Annuity: In this type of annuity plan, you are required to invest money for some time. This is called the accumulation period. The payment starts after a certain date. This is known as the vesting phase from when the policy benefits are rolled out. You can use an annuity calculator to get a clear idea of the premium.
Annuity and Taxation Policy
Tax benefits on the best annuity plan are as per the Income Tax laws in India. Further, they are subjected to change from time to time. Therefore, it is advisable to consult your tax advisor for making the right decisions.
Benefits of Annuity Plans
As an individual, non-linked and non-participating product, annuity plans come with a unique set of benefits. For example, it offers security, flexibility, and reliability. Have a look at a few others.
- You can pick your payment frequency: monthly, quarterly, half-yearly, or annually.
- There are no investment caps on annuity plans.
- Offers income benefit for a lifetime without you having to worry about fund shortage.
- You can make unlimited contributions in an annuity plan.
- The investment amount is tax-deferred until you start withdrawing payments.
Before buying an annuity policy, read the benefits, terms, and conditions thoroughly. This will help you make an informed choice.