You may have heard of the term annuity here and there from friends, family, and colleagues, but do you know what is annuity? An annuity is a long-term deal between a buyer and an insurance provider for retirement. For example, the purchaser might make a single donation or a series of payments over time—the insurer is to begin making monthly payments to the buyer later, usually after retirement.
Most people would like to spend their retirement years learning new activities, pursuing their aspirations, travelling, and spending time with their family and friends. However, growing medical inflation, living costs, and life expectancy have necessitated that individuals begin planning for retirement as soon as feasible. As a result, people as early as their twenties and thirties are worried about retirement preparations.
What is annuity?
Annuity insurance, as the name implies, allows you to receive regular payments for the rest of your life after investing. Occurs is that the life insurance company invests your money and returns the profits to you as rewards when you retire.
So, if you want guaranteed income in your retirement years, you should consider such a plan.
- An annuity is a periodical payment made during the Policy Term.
- An annuitant is an individual on whose behalf the insurance issue is you.
What is annuity and its varieties?
- When the annuitant dies, the annuity payment is terminated.
- Life Annuity with Purchase Price Refund: With this option, annuity payments continue as long as the annuitant is alive. When the annuitant dies, the purchase money is paid to the nominee, and the policy is canceled.
Here are ways why annuity plans are a good choice:
A consistent source of income.
An annuity plan requires you to invest a significant sum and get a regular income after retirement for the rest of your life. Policyholders can select the age at which they want to begin receiving annuities and the payment regularity from monthly, quarterly, half-annually, and yearly options. The income certainty provided by an annuity plan gives you a sense of safety and allows you to live a more happy and stress-free life.
Tax-advantaged Growth
You will not pay income taxes on annuity earnings until you begin making withdrawals or receiving periodic payments. However, withdrawals made before the age of 5912 may be subject to an extra 10% tax.
There is no risk of Reinvestment.
India is gradually going toward a low-interest-rate regime. Falling interest rates are a prime illustration of this. Other investment alternatives always include a reinvestment risk of receiving lesser returns when reinvesting the original amount. The volatile rate of return is unsuitable for something as crucial as retirement planning.
Reinvestment Risk does not Exist in Annuity Programs.
You invest a lump sum, and the insurance promises to pay the annuity at the same rate for the remainder of your life.
The Death Benefit
Payout systems generally contain insurance measures that ensure payment to your selected beneficiaries if you die before payments commence.
Conclusion
Most popular long-term investment alternatives, such as stock, include high risk. While investors should always strive to establish a diversified portfolio with various asset types, they should also have at least a few assets that provide assured returns regardless of market conditions to explain better what is annuity.