Annuity and its types

Annuity : A contract between a person and life insurance company where insurance company gives regular income to person throughout the life. This payout is provided either immediate or in future depend on person’s selection of plan. Payout amount is dependent on purchase price. In Simple words, purchase price is the amount that person gives to insurance company while buying annuity. In some plans, interest on annuity is dependent on purchase price. If purchase price is higher, interest too gets higher.

Types of Annuity : There are 2 main types of annuity, Immediate annuity and Deferred annuity.

Immediate Annuity : If a person wants to get annuity immediately, he should go for immediate annuity plan. This plan is suitable for person close to their retirement.

Deferred Annuity : If a person wants to get annuity amount after specific period of time, he should go for deferred annuity plan. This phase where person pays money for specific term is known as accumulation phase. This plan is suitable for person in their 20’s.

Regular payout can be fixed or variable depends on type of plan customer has opted.

Fixed payout : In such pension plan, fixed amount is given as per frequency selected by customer, this are non -linked, endowment plan where amount is fixed. This is for conservative investors with less risk.

Variable payout : This are linked pension plans, which are market dependent, so, customer gets variable payout based on performance of fund.

How various type of Annuity works :

  1. Life Annuity : when a person opts for life annuity, he gets annuity amount till the time he is alive. It stops on person’s death.

2. Life Annuity with Return of purchase price :When a person opts for this annuity, he gets annuity amount till he is alive, on death, his nominee receives purchase price. For Ex, A person purchased annuity of 15 lakh. He receivesd annuity of 1 lakh for 10 years and he died. Overall, he got 10 lakh till now. On death of annuitant. his nominee will receive purchase price of 15 lakh. Overall, he received 25 lakh.

3. Joint life survivor annuity : In this type of annuity, if an annuitant dies, annuity amount is given to his spouse. So, overall, annuity is provided either till a person or his spouse is alive.

4.Joint life annuity with return of purchase price : As the name suggest, Joint life annuity, it means annuity amount will be given either to annuitant or his spouse, whoever is alive. On death of both, nominee receives purchase price of annuity. For ex, A a person buys annuity of 10 lakh, he receives yearly 75k as annuity amount. He died after 4 years. So, he has received 3 lakh rs till now. Post his death, annuity amount will be provided to his wife. Suppose, she received annuity for another 4 years, and she dies. Till now, annuity of 6 lakh has been received. Now, On death of both, an annuitant and his wife, Purchase price worth rs 10 lakh will be given to nominee. So, overall, A person received benefit of 16 lakh.

Disclaimer :

This article is not sponsored and not meant for endorsing any particular insurance company. Please Check Terms and Condition of respective organization along with inclusion and exclusion before buying insurance policy.

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