What is Annuity

An annuity is a fixed amount of money that you will get each year for the rest of your life. An annuity is a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future. It helps you to get a regular payment for life after making one lump sum payment or a series of instalments.

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What are the different types of annuities?

There are two types of annuities:

Immediate annuity plans

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 annuity

These are the pension plans in which the annuity starts after a certain date. It can be further divided into the following:

The annuities may also vary basis the type of payout you receive:

Fixed Annuity

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.

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Variable Annuity

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.

     

  • Accumulation phase- It is the phase when you start investing and accumulating cash and commences from the date when you first time pay premium.
  • Vesting phase- It is the date from which you will start getting the policy benefits in the form of pension.

How do different types of annuities work?

Annuities provide you with a regular income during your retirement throughout your lifetime. They offer various options to choose from, to suit your retirement needs. Here is how they 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 the death of both, the nominee is entitled to get the initial invested amount.

✅ 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.

✅ 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 happens to my annuity if I die?

The fate of the annuity after policy holder’s demise depends on the choice exercised by policyholder while buying the plan. In cases where there is life annuity, no annuity is paid out once the policyholder dies and the money stays with the insurance company. In the case of a joint life annuity, no money is paid after both the policy holder’s demise and the money stays with the insurance company.

✅ 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.

✅ 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 happens to my annuity if I die?

The fate of the annuity after policy holder’s demise depends on the choice exercised by policyholder while buying the plan. In cases where there is life annuity, no annuity is paid out once the policyholder dies and the money stays with the insurance company. In the case of a joint life annuity, no money is paid after both the policy holder’s demise and the money stays with the insurance company.


Who should buy an Annuity plan?

If you want a guaranteed1 income for life, especially post-retirement, you should consider buying an annuity plan. The objective of an annuity plan is to ensure financial freedom during your retirement, when your regular income stops. You can use the payout from an annuity plan to cover your day-to-day expenses during retirement and to fulfil your post-retirement dreams, such as travelling, starting a venture, pursuing a hobby, and more.

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What is the right time to buy an Annuity plan?

The basic idea of an annuity plan is to invest regularly or a lump sum amount and get a regular income for life. Buying the plan early will provide you a higher amount.

Consider the following examples:

  1. Ravi is 50 years old and wants to retire at 60. He invests ₹ 10/- lakh in ICICI Pru Guaranteed Pension Plan with the option of Deferred Single Life with Return of Purchase Price. He will receive an annuity of ₹ 1,08,315 annually, for life. In case of an unfortunate event, ₹ 10/- lakh will be paid to his nominee.
  2. Shastri purchases the same plan at the age of 58 and invests ₹ 10/- lakh. He will receive an annuity of ₹ 69,218/- annually, for life. In case of an unfortunate event, ₹ 10/- lakh will be paid to his nominee.

The above examples show that the returns are better when you purchase the plan early.

Benefits of Annuity plans

a) Lifetime source of income

One of the key features of an annuity plan is that it provides a regular income throughout your life, even after retirement.

b) Multiple options to choose from

This offers you the flexibility to opt for a plan that suits your requirements. You may choose the single life option to get income for life, or the joint life option to cover your spouse as well. You may also opt to get the purchase price back after a certain period. Annuity plans provide multiple such options that help you customise the plan as per your needs.

c) Tax beneifts*

The premium you pay at the time of purchase of the plan is allowed as deduction up to ₹ 1.5 lakh under Section 80C of the Income Tax Act, 1961.

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* Tax benefits under the policy are subject to conditions under Section 80C, 80D, 10(10D),115BAC and other provisions of the Income Tax Act, 1961. Goods and Services Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for details, before acting on above

1 Annuity will be payable in arrears. The frequency of annuity payments can be monthly, half-yearly, quarterly or annually as chosen by the annuitant at the time of purchasing the annuity. The annuity amount chosen at policy inception is guaranteed for life

ICICI Pru Guaranteed Pension Plan UIN: 105N181V02

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