Apart from a life insurance plan, it's a good idea to have an annuity plan in your kitty. This type of plan is a perfect solution for those who are not getting any pension benefits from their employer.
Annuities represent the flip side of life insurance. Where life insurance covers the risk of loss of earnings due to untimely death, annuities cover the risk of discontinued earnings when a person retires from his/her job. With new life saving drugs and innovations in medical technology, the life expectancy of an average individual has become much higher. A healthy person can hope to live till the ripe age of 90 plus, which means that he has to sustain at least 30 years of living expenses post his retirement. Therefore investing in a sound annuity plan is imperative.
Annuity plans are categorized as deferred annuity plans and immediate annuity plans. Premiums are payable on monthly, quarterly or annual basis.
Deferred annuity plans are pension plans that are dividend in two phases - accumulation phase and vesting phase. The accumulation phase is the time from which the first premium is paid to the last date of payment, which is your retirement. The vesting phase is the period after you retire when you receive the annuity payments. This plan kicks in from retirement day to the day of the plan buyer's death. During this period, the plan buyer receives a regular pension known as the annuity payment.
Immediate annuity plans do not have an accumulation phase and the plan starts right from the vesting phase. You need to invest a lump sum amount to buy a series of annuity products throughout your life.
Typically, depending on the type of pension payment you want, there are four types of annuity options in the market. These include:
Life annuity: Here the policy holder will receive regular annual / monthly / quarterly / annuity payouts from the scheme until the annuity holder's death.
· Life annuity with return of purchase price: In this case if the holder dies then the company returns the lump sum amount that was used to buy the annuity to the nominee of the annuity buyer.
· Joint life last survivor with or without return of purchase price: This covers the annuity holder & his spouse. Here, the pension will be paid regularly to the primary investor until his death and then it will be paid to his spouse until the spouse's death. This option too comes with and without return of purchase price option.
· Life annuity guaranteed for 5/10/15 years and thereafter: Under this option, the annuity is guaranteed to be paid for the chosen time span even if the insured dies before the completion of the chosen period. If the insured survives the term, annuity shall continue until he is alive.
While buying these polices always read the fine print and compare the quotes of existing policies - premium, benefits, disadvantages, sops, terms and conditions - to see what suits your needs the best. It's always best to buy an insurance policy online as it saves time, is cost effective and is a transparent option. Invest now.
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