An Annuity plan is a financial tool which provides a regular stream of income, especially for the purpose of retirement planning. It is a contract entered into between an insurance company & an investor, which requires the investor to make payments, either in a lump sum or regular instalments. After which, an insurance company releases regular payouts either on an immediate or deferred basis. Annuity plans offer a secure & stress-free retirement period, ensuring a guaranteed, regular, & lifelong source of income. An annuity plan can be chosen depending on the requirements of the family & investment horizon.
An Immediate Annuity plan includes receipt of payouts immediately after the initial investment has been made. This plan is best suited for those individuals who are close to retirement & want to receive a regular source of income. This plan includes a regular pension immediately after it is purchased, i.e. no deferred payments.
Difference between an Immediate Annuity & a Deferred Annuity Plan
Once you have understood the Annuity Definition, let us now understand the difference between the two types of annuity plans, namely Immediate & Deferred:
| Basis of Difference | Immediate Annuity | Deferred Annuity |
| Meaning | This includes receipt of payout immediately after the investment, which can be monthly or annually. | This includes payment of premium in monthly, annual or lump sum mode for a pre-decided tenure. |
| Payout | It starts immediately after the investment. | It starts once all the premium payments have been completed. |
| Death benefit | In case of the death of the annuitant, the death benefits would be received by their nominee. | In case of the death of the annuitant, the death benefits would be received by their nominee. |
| Best Suits | Those near to their retirement | Those who have time left in retirement & want to do retirement planning. |
| Premium Payment | In a lump sum | Mostly installments |
| Investment Growth | Since payouts start immediately, no growth in investments. | Higher returns due to deferment in the period. |
| Withdrawals | Partial withdrawals are not allowed | Allowed, but with penalties or leading to lower returns. |
| Affordability | Expensive | Cost-effective |
| Taxation | Taxable | Tax-free |
Features of an Immediate Annuity Plan
Provided are the features of an Immediate Annuity Plan:
- Immediate Income:
This plan offers an immediate source of income, i.e. immediately after the funds are invested.
- Market Protection:
It is considered to be one of the safest & secure investment plans, as this plan is not affected by the changes in the interest rates, market fluctuations, economic conditions, etc.
- No Investment Management:
You are not required to take the stress of fund management, as this is taken over by the insurance company. This means the insurance company manages all the investments to ensure regular payouts with hassle-free investment.
- Flexible Payout Options:
It offers flexibility in releasing payouts, i.e. monthly, quarterly, semi-annually, or annually as & when required.
- Death Benefit With Return of Premium (ROP):
This plan ensures receipt of the premium amount by nominees in case of the death of an annuitant.
- Increasing Annuity:
This plan helps beat inflation by increasing the annuity over time, which makes it a great investment option offering long-term financial security.
Benefits of Immediate Annuity Plans
Providing the benefits of an Immediate Annuity Plans:
- Guaranteed Income:
This plan starts paying an assured income immediately after the plan is bought, hence providing you financial stability.
- Lifetime Payments:
This plan ensures receipt of a regular stream of income, which ensures that your savings will never exhausts.
- Predictable Return
The returns offered are well-known in advance, which makes the financial planning quite easier. Also, an Annuity Calculator can be used to make an advance estimate of your returns.
- Protection Against Reducing Interest Rates:
This plan offers you with a fixed rate of annuity throughout your life, hence protects you against the dropping interest rates of other financial instruments.
- Customizable Options:
This plan offers you multiple payout options, which can be customised according to your financial needs & requirements.
- Tax benefits:
This plan entitles you to claim a tax deduction on the amount of premium paid u/s 80C of Income Tax Act, 1961.
Types of Immediate Annuity Plans
Provided are the different types of Immediate Annuity Plans:
- Single Life Annuity Plan
- This plan offers income for a lifetime, but stops if the investor dies.
- The frequency of income can be monthly, quarterly, semi-annually, or annually.
- It best suits those who need a pension throughout their lifetime & do not have any dependents.
- Joint Annuity Plan
- This plan offers income for the spouse or nominees of an investor in case the investor dies.
- This plan entitles the investor to receive a pension for life.
- The frequency of income can be monthly, quarterly, semi-annually, or annually.
- This plan best suits those investors who want to want to secure the routine expenses of their spouses or dependents, even after they die.
- Annuity with Return of Purchase Price
- This pension plan can be availed throughout life.
- If the investor dies, their nominee will receive an amount equivalent to the amount initially invested.
- The frequency of income can be monthly, quarterly, semi-annually, or annually.
- This plan best suits those individuals who want to offer an amount in lump sum amount post their death.
Is an Immediate Annuity plan for you?
An immediate annuity plan best suits you as an investor if:
- You are close to your retirement eager to earn an immediate & assured source of income.
- You have a lump sum amount to be invested such as pension.
- You are a risk averse individual, which means who are not ready to bear risks & prefer assured returns with less risk.
- You expect a good & healthy life to lead your life.
Conclusion
An immediate Annuity Plan provides a reliable source of income throughout your retirement period. This plan comes with flexible payout options & lucrative returns, hence providing you with a stress free retirement. This plan lets you compare multiple options available which results in an assured long-term financial stability & increased financial benefits.