Financial Planning,Plan

What To Look For While Buying An Annuity Plan?

One should choose an annuity plan based on income requirement, duration, flexibility in premium payments, tax benefits, etc., that provide the best solution to their needs.

Priyanka Debnath

Updated on: 31 August 2024 10:29 pm

What To Look For While Buying An Annuity Plan? Photo: What To Look For While Buying An Annuity Plan?

Annuity plans are financial products that offer guaranteed or variable returns at specific intervals. One can contribute to an annuity plan in installments for a fixed period or in a lump sum before the payouts begin at specific intervals the buyer selects at the time of onboarding. Annuity plans are ideal for people who need a regular income stream after retirement. Buying an annuity is a major decision toward securing one’s financial stability, especially in retirement. The following are some key factors to assess while purchasing an annuity plan.

Annuity Types:

Annuities are available in immediate, deferred, fixed, and variable types. While an immediate annuity starts paying almost immediately, a deferred annuity would pay on a future date. While fixed annuities offer guarantee payments, variable annuities pay based on the performance of the investment. So, choose an annuity plan that fits your needs and aligns with your financial goals and retirement timeline.

Frequency of Payout:

Determine how frequently you want your payments: monthly, quarterly, semi-annually, or annually. Since most plans would allow their clients to enjoy flexible payout options, choose a frequency that would work for your cash flow needs.

Term and Guarantee Period:

Check the plan’s terms, such as whether it is fixed or variable. Check if the scheme has a holding period before the benefits are passed to the subscriber.

Tax Benefits:

Whether the annuity premiums are eligible for deductions under Section 80C of the Income Tax Act, and income received is tax exempt under Section 10(10D). So, check the tax implications to optimise financial benefits.

Return of Purchase Price (ROP):

One should also look for options that provide for the return of the initial purchase price to the beneficiaries upon the investor’s death. The plan should be efficient enough to take care of your loved ones. According to Amol Joshi, founder of PlanRupee Investment Services, an investment advisory firm, “Evaluate a few annuity plans for the percentage of return they generate over the period you choose. Based on that, you can get the monthly annuity payout amount. If this matches your requirements, it is the ideal annuity premium you should pay. If it falls short or is excessive, you will have to calibrate to arrive at an ideal amount”.

Options and Flexibility:

The flexibility can include options for joint life annuities with continuing income to a spouse, inflation protection that preserves purchasing power over time, and withdrawal options for emergencies.

Insurer’s Financial Strength:

Find an established insurer with high financial strength ratings that assure complete confidence in the security of the income streams for a very long period. Besides, check for the ratings provided by independent agencies, considering the claims-paying history of the insurer. After careful consideration, pick the annuity plan that best fits your retirement needs, such as financial stability and security in old age.

Published At: 31 August 2024 10:29 pm