What Are the Different Kinds of Annuities?

Annuity is an insurance product that can be used as a part of retirement planning. These plans help one receive payments regularly for a lifetime after investing a lump sum. An individual is required to make an investment in the annuity so as to receive payments on a future date. It must be noted that the payments are determined based on the length of the payment period. 

Annuity plans are worth investing in as they offer a fixed income for the rest of the life, thereby providing financial security. Moreover, these plans provide the flexibility to choose a monthly or yearly payout mode along with tax benefits. What’s more is that one gets the option to choose between Life Annuity and Life Annuity with return of Purchase Price. 

Types of Annuities

The types of annuities available include:

• With and Without Cover Pension Plan

‘With cover’ pension plans provide a life cover, thereby offering a lump sum amount to the family in case of the policyholder's demise. ‘Without cover’ pension plans do not provide any life cover and the amount till the date of the policyholder’s death is paid to the dependents. 

• Deferred Annuity

In case of deferred annuity, the annuitant pays premiums till the time the policy term is over. After the policy term is complete, the annuitant starts receiving pension. The amount invested is free from tax. The payment can be made one-time or in the form of regular contributions.

• Immediate Annuity

In case of immediate annuity, the annuitant has to deposit a large amount for the pension to begin on an immediate basis. The annuitant is eligible to avail tax benefits. 

• Annuity Certain

Annuity is paid for a specific period. If the policyholder dies before that specific period, the amount is given to the beneficiary. 

• Guaranteed Period Annuity

Annuity is paid for certain periods, even if the annuitant survives.

• Life Annuity

Pension is paid until the annuitant dies. If ‘with spouse option’ is selected, the pension goes to the spouse.

• National Pension Scheme or NPS

Introduced by the government, NPS comes with the option of withdrawing 60% of the amount at retirement. The rest is used for purchasing annuities. It must be learned that the maturity amount is not tax free.

Frequently Asked Questions About Annuities 

1. Do annuities come with an age limit?

Yes! The age limit varies based on the plans.

2. At what age should one buy an annuity?

Experts suggest purchasing an annuity between 45 years to 55 years. In the case of deferred annuities, the best age varies on the basis of plan.

3. Do annuities pay on a monthly basis?

Yes! Annuities can pay on a monthly basis. 

4. Can I pre-withdraw my annuity?

Yes! Annuity can be pre-withdrawn if the insured is diagnosed with a critical illness. 

Now that you know a lot about annuities, go ahead and make an informed choice. Make sure you assess all your specific needs beforehand to avoid any form of disappointment in the long run.

Must Read: What Are The Different Types of Retirement Insurance Plans?

What Are The Common Exclusions Under Max Life Retirement Insurance Plans?

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