Learn About the Different Types of Annuities

An annuity plan is an instrument that ensures a guaranteed monthly payment in exchange for a lump sum amount or instalment. It is a contract between the policyholder and the insurance company where the insurer promises to pay regular payments immediately or after some duration.

Usually, people with long-term financial goals like retirement planning invest in annuities. This is because they allow you to ensure a source of income once you retire through the process of accumulation and annuitisation. The accumulation phase is when you have to build the corpus over time, while the annuitisation phase is when you start receiving monthly payments.

With different types of annuities available in India, you must know about each to make an informed choice. Here are the different annuity plans to choose from.

Types of Annuities 

Following are the different types of annuities available in India:

• Lump Sum Annuity

  As the name implies, a lump sum annuity pays you a lump sum amount instead of regular payouts. However, the option of availing of the lump sum is available for a specific period and is a choice. Usually, lump sum annuities do not allow withdrawing the entire sum in one go. For example, under the National Pension Scheme (NPS), you can withdraw 60% of the retirement corpus in a lump sum while you have to keep 40% of the corpus to purchase an annuity.

• Immediate Annuity

  In an immediate annuity plan, you have to pay the premium at once instead of regular payments. It allows you to avail of regular payments as soon as you pay the entire corpus. Thus, an immediate annuity plan does not have the accumulation phase. It is suitable for individuals who are nearing retirement and looking for a fixed income immediately.

• Deferred Annuity

  A deferred annuity is a long-term investment plan with an accumulation phase and income phase. The accumulation phase allows you to make regular payments, while the income phase starts when you make the last contribution. It is a type of retirement annuity or pension plan that helps you build a corpus over time and avail of annuity upon retirement. Usually, a deferred annuity provides life insurance cover, too and pays a lump sum to the nominee if anything unfortunate happens to you.

• Fixed Annuity

  As the name implies, a fixed annuity involves a fixed payout throughout the annuitisation phase. The insurer provides guaranteed and fixed interest rates on your contributions. You can buy a fixed immediate annuity with a lump sum or a fixed deferred annuity with a series of payments. A fixed annuity is suitable for individuals seeking a fixed and regular source of income. However, you must note that fixed annuities do not offer the opportunity to grow your contributions over time.

• Variable Annuity

  Unlike a fixed annuity, a variable annuity is an annuity plan which is linked to an underlying investment portfolio. The variable annuity plan offers a higher potential for growing your corpus; however, it is more prone to market risks. With their sub-accounts, variable annuities allow you to pick from a variety of mutual funds. The retirement payouts of your annuity thus depend on the performance of the sub-investment accounts.

• Indexed Annuities

  Indexed annuities are like variable annuities, but they offer a minimum payout while tying a portion of the returns with the performance of a market index.

Conclusion

Annuities are usually considered income-generating instruments instead of investments for capital appreciation. However, annuity plans offer benefits like long-term financial security, principal protection, tax benefits and inflation adjustment. Thus, annuity plans are best suited for individuals seeking a regular source of income after retirement.

With PNB MetLife, you can buy the best annuity plan to fulfil your day-to-day needs post-retirement. To financially secure your old age, you must consider buying an annuity plan at an early age. So, choose PNB MetLife and secure your post-retirement life today. To know more, please read the relevant articles at our website www.pnbmetlife.com.

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