Pension policies: Should you invest in annuity plans?

An annuity plan is an insurance instrument that helps you plan for the future. It enables you to build a corpus that is paid out to you sometime in the future. Thus, an annuity policy can be used as a post-retirement pension plan. It provides a return on a month, quarterly, half-yearly or annual basis.

There are five types of annuity policies available in India, such as immediate, deferred, fixed, variable and lump-sum annuity. These plans present a great degree of flexibility, with every plan serving a slightly different purpose.

How Do Annuity Plans Work?

An annuity policy is an insurance product that provides a guaranteed income either for life or for a specific timeframe. It doesn’t have an insurance component. These plans ensure regular life-long income through a one-time lump sum or regular premium payments.

  • It provides you ample financial liquidity in form of regular pay outs. This is why these are very beneficial for a comfortable retirement. 
  • These plans are a great way of preserving your capital efficiently. They also keep factors such as inflation in consideration when you invest your money in them. 
  • These plans also offer tax benefits. Under the Section 80C and 10(10D) of the Income Tax Act, you can avail tax deductions on the premiums paid and the pay out.
  • They keep your principal amount protected. This means that the returns cannot be lower than the principal amount.

Who Should Buy Such Plans?

Since future planning is what an annuity plan is essentially meant for. It’s best to start early and pay premiums regularly. This makes it more affordable and gives your money enough time to grow. Besides, the sooner you begin, the lower the premium you have to pay. 

  • You can access special benefits from individual plans. For instance, an immediate annuity is perfect for an individual who has a lump-sum corpus. Such a plan starts paying you compensation with immediate effect. At the same time, it helps preserve your capital. 
  • A deferred plan works in exactly the opposite manner to the immediate plan. If paying a premium over a period of time and accruing a pension on the accumulated fund is what you desire, this is the plan for you.
  • Similarly, fixed and variable annuity are meant to serve entirely opposite purposes. While the former is perfect for those who like risk-averse instruments, the latter banks on the performance of funds and suits those who are looking for higher returns even if it means bearing slightly higher risk. 
  • Besides, if you like to receive an accumulated fund against payments over a stipulated period of time, you may opt for a lump-sum plan.

Buying a plan is simple and an effective way to plan your financial future. However, make sure to read through the plan carefully to make an informed decision.