Annuity - Meaning & Benefits
What is an Annuity?
An annuity plan provides guaranteed regular payments during retirement for the rest of your life in exchange for a lump sum payment or a series of instalments. It is a contract that you sign with an insurance company that ensures a steady and reliable income so that you are financially independent even during your retirement phase.
Features of annuity
Below are some of the key features of an annuity plan:
1. Safe investment option
Annuity plans are low risk plans that are not market-linked. The amount you receive is guaranteed1 and is fixed at the time of the purchase of the plan
1T&Cs apply
2. Financial security
Annuity plans provide you with an income for life. This helps you stay financially independent during your retirement
3. Flexibility
These plans offer you the flexibility to choose how you want to receive your income. You can choose to receive the income from the plan monthly, quarterly, half-yearly or yearly. Some annuity plans also offer you the flexibility to pay your premiums monthly, half-yearly, yearly or all at once as per your convenience
What are the different types of annuities?
Immediate annuities
There is no accumulation phase and the plan starts working right from the vesting phase. It is purchased with a lump sum and the annuity payment starts immediately either for a limited tenure or lifetime.
Deferred annuities
Deferred annuities have an accumulation period that allows you to build savings over time through a series of instalments before you start receiving the payouts. They are ideal for retirement planning if you have some time before retiring and want to secure a steady income for the future
Fixed annuities
Simply put, an annuity plan that gives you a guaranteed1 amount throughout the tenure of the policy is a fixed annuity plan. This guaranteed amount is pre-decided at the time of purchase of the policy. The amount paid to you is guaranteed. It does not get affected by market fluctuations.
1T&C Apply
Variable annuities
In a variable annuity plan, your premiums are invested in instruments, such as mutual funds or equities. Payouts from such plans depend on the performance of the fund your money is invested in. If the fund performs well, you will get greater returns and vice versa.
No matter what your need is, we have a solution
- Start income after a few years
- Single Life and Joint Life4 options
- Waiver of premium2 option
- Return of Purchase Price3 to your nominee
What are the Benefits of Investing in an Annuity Plan?
Below are some benefits of investing in an annuity plan:
Post-retirement steady income stream
Annuity plans provide a steady stream of income for life ensuring a worry-free retirement. This stable income may allow you to enjoy your golden years fulfilling long pending dreams of yours like travelling, starting a company or supporting causes close to your heart. This income may also let you witness the growth of your family without becoming financially dependent on them. With rising healthcare and living expenses, annuity plans offer the security and peace of mind needed to maintain your independence and lifestyle.
Tax-Savings
Annuity plans offer tax* benefits under Section 80C of The Income Tax Act, 1961, so you can save on taxes while securing your retirement income.
Shield Yourself from Market Volatility
Fixed annuity plans provide guaranteed payouts with a fixed annuity rate. This income shields you from market volatility as it is not impacted by the market fluctuations. This protection is crucial in retirement, when preserving capital and securing predictable income become top priorities. With annuity plans, you gain peace of mind knowing that your lifestyle and financial goals remain unaffected with market ups and downs.
Diversified portfolio
If you want to benefit from market growth, variable annuities offer a range of investment options that help diversify your portfolio, reduce risk and potentially grow your wealth over time.
Immediate payouts
Immediate annuity plans start providing regular income right away benefitting the retirees seeking instant annuity.
Flexible Payouts
Annuities offer flexible options that allow you to choose how and when you receive payments. You can select the payout frequency and amount based on your financial needs and preferences.
Who should invest in an Annuity plan?
Annuity plans are ideal for people looking for a stable, risk-free investment with long-term financial security and tax benefits. They are especially suited for those who want a guaranteed income stream in retirement.
Annuities can help you manage your daily expenses while also supporting your post-retirement goals, such as healthcare needs, travel and more.
1T&C Apply
Retirees
Retirees can benefit from the steady income provided by the annuity plans. These plans may ensure financial security and stability throughout retirement.
Senior citizens
Senior citizens can use annuities to maintain financial independence in their later years. These plans simplify money management and help you live comfortably without financial worries.
Entrepreneurs
Entrepreneurs may not have workplace pension plans, which makes it essential to create their own retirement income. Annuity plans can help them build a reliable stream of income for their post-work years.
Investors seeking portfolio diversification
Annuities provide investment diversification, which enables you to explore different asset classes while maintaining a stable income stream.
Conservative Investors
Annuity plans like fixed annuities offer risk-free investments that can appeal to conservative investors who do not want to expose their money to too much risk in retirement. These plans prioritise capital security and ensure steady returns without exposure to market volatility.
What is the best time to buy an annuity plan?
Annuity plans provide you with the flexibility to start investing as per your convenience. If you are nearing retirement, you may have a large savings amount that you may want to invest. Some annuity plans provide you with the option to invest a lump sum and start receiving the income as early as the year following the purchase of the plan. You may also choose to receive the income at a later age.
If you are in your early earning years, you may want to invest smaller amounts towards your annuity plan regularly. Some annuity plans provide you with the option to invest regularly and receive income at a later age for your retirement. This enables you to invest small amounts, thereby making it easy on your pocket. It is important that you start investing in an annuity plan as early as possible.
What is Surrender Period?
The surrender period starts right after purchasing an annuity plan. During this period, you cannot withdraw your funds from the plan. If you try to withdraw your money before the surrender period ends, you will likely pay a penalty.
Typically, surrender period for annuity plans can be between 6 to 8 years. This can, of course, be different depending on the nature of policy chosen and the insurer. Once the surrender period ends, the policyholder can surrender the policy in full or in part and get back the asset value of the policy without attracting any surrender charge.
COMP/DOC/Dec/2023/2212/5052
COMP/DOC/Jun/2025/136/0481
Frequently Asked Questions
When can you withdraw money from an annuity?
Money can be withdrawn from an annuity under certain special conditions. Firstly, some annuity plans allow withdrawal if the policyholder is diagnosed with a specified critical illness. Secondly, some annuity options return whole or part of the original purchase to the nominee after the demise of the policyholder.
How much income does an annuity payout on average?
The income from an annuity payout can depend on a number of factors, such as the amount of money invested, the policy term, the type of annuity, the chosen payout option and your age, among other things.
What is the Accumulation phase in investing?
The accumulation phase is the period when you invest money into a plan before making any withdrawals. During this phase, your funds grow for future financial needs.
What is the Vesting phase in investing?
The vesting phase begins when you start receiving regular payouts from your investment. This phase comes after the accumulation period and can last for a fixed duration or even for life, depending on the type of annuity or investment plan you choose.
What is the best age to buy an annuity?
There is no best age to buy an annuity. Most annuity plans allow you to buy a policy starting from the age of 30 years up to 60 years. You can buy a plan anytime during this period based on your individual circumstances, financial goals and retirement plans. However, annuities are primarily retirement-saving tools, so it is generally beneficial to align the purchase of an annuity with your desired retirement timeframe.
Is there an age limit for annuities?
In case of ICICI Pru Guaranteed Pension Plan - Immediate Annuity, the minimum age of somebody buying an individual annuity is 30 years. The maximum age for buying an annuity is 100 years.
Are annuities good for senior citizens?
Yes, immediate annuities give financial independence to senior citizens. Annuities allow senior citizens to live life on your own terms with a regular stream of income throughout their life with options to match different needs. Senior citizens can pay once, and get guaranteed regular income for life.
What are the tax* implications of buying an annuity pension plan?
You can claim tax* benefits on the premiums paid towards the plan up to ₹ 1.5 lakh per annum under Section 80C of The Income Tax Act, 1961. The income received from the plan is taxable as per the prevailing tax laws.
COMP/DOC/Jun/2025/106/0437
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