What is Annuity?
An annuity is a plan that helps you to get a regular payment for life after making a lump sum investment. The life insurance company invests the money of the investor and pays back the returns generated from it.
How different types of annuities work?
These are how various annuity plans work:
- Life annuity: You will get regular (monthly/quarterly/yearly) annuity payouts from the scheme till you are alive. The annuity stops after your death.
- Life annuity with return of purchase price: You will continue receiving annuity payments regularly until you die. After that, the insurer returns the initial amount, which was used to purchase the annuity, to your nominee. It is a good option for those who want to leave a legacy behind.
- Annuity payable for a guaranteed period: The annuity is to be paid for a guaranteed period, say 5, 10 or 15 years even if the annuity buyer dies. Annuity stops either on the death of the annuitant or completion of the guaranteed period, whichever is later.
- Inflation-indexed annuity: Every year, there will be a rise in the annuity payable at a certain rate, say 2% or 5%. Though it may not be linked to the actual inflation rate, the rationale is that it would take care of the increase in expenses to some extent.
- Joint life survivor annuity: It keeps paying till either you or your spouse is alive.
- Joint life annuity with return of purchase price: It keeps paying till you or your spouse is alive. In the case of death of the both, the nominee is entitled to get the initial invested amount.