What is immediate annuity?

An immediate annuity plan is an annuity plan that provides you with regular income immediately after buying the plan. With an immediate annuity plan, you pay a lump sum and start receiving regular payouts as early as the following month, depending on the frequency that you choose. Immediate annuity plans are a suitable option if you are nearing retirement and require an immediate and reliable source of income. This type of annuity offers you immediate benefits on your investment and ensures financial stability during your retirement years.

How does an immediate annuity plan work?

Here’s an example that can help you understand how an immediate annuity plan works:

Consider a scenario where Mr Sharma, a 59-year-old professor, is approaching retirement. Mr Sharma plans to retire next year and has a large savings amount. He wants to enjoy a comfortable lifestyle post retirement with a steady income to cover his essential and non-essential expenses.

Mr Sharma invests a lump sum from his savings in an immediate annuity plan. Basis his plan, Mr Sharma will start receiving a regular payout as early as the following month from the date of investing in the plan. The amount and the frequency of the payout are decided at the time of investment as per Mr Sharma’s preference and needs.

This income will continue for Mr Sharma’s life and will provide him with a dependable and regular source of money to support his post-retirement lifestyle.

Features and Benefits of Immediate Annuity

Below are some key benefits of an immediate annuity plan:

a) Regular income during retirement:

The plan provides you with regular income to meet your post-retirement needs. This ensures you stay financially independent even during retirement

b) Safe investment:

Immediate annuity plans offer a fixed payout that is free from market volatility. These plans are safe investments with low risk.

c) Flexibility in payouts:

You can choose to receive your annuity payouts monthly, quarterly, half-yearly, or annually, as per your requirements.

d) Plan flexibility:

Some annuity plans offer multiple flexible options, such as option to add your spouse to the plan, option to get your purchase price back, and more. These options help you customise your plan as per your requirements.

e) Tax benefits:

You can claim tax* benefits on the premiums paid under Section 80C of The Income Tax Act, 1961 and maximise your savings.

Immediate vs. Deferred Annuity: Understanding Your Retirement Options

Immediate Annuity

Immediate annuity allows you to invest a lump sum of money with an insurance company. In return, you are given regular payments immediately after the purchase of the plan. The payouts continue for a predetermined period for the rest of your life. The immediate income stream can be crucial if you need immediate financial support in retirement. An immediate annuity plan can be helpful to cater to goals like house ownership, renovation of a house or any other retirement need that requires your immediate attention.

Deferred Annuity

In contrast to immediate annuity, deferred annuity plans have a waiting period after you purchase the plan. You begin to receive payouts only after this period is over. One of the benefits of a deferred annuity plan is that your money grows tax-deferred.

Unlike an immediate annuity, a deferred annuity provides flexibility in choosing when you start receiving payments. This means you can opt to receive payouts later in retirement, as and when the need arises. You can also convert a deferred annuity into an immediate annuity plan when it is time to start receiving regular income.

When should you buy an immediate annuity plan?

The right age to buy an annuity plan can depend on a number of factors. You can consider buying an immediate annuity plan if you are nearing your retirement. Immediate annuity plans are suitable if you need an immediate source of income to meet your financial needs.

On the other hand, if you want to receive your annuity payouts after a specified period, you can choose a deferred annuity plan. Deferred annuity plans offer you with regular income from a later date, as chosen by you at the time of purchasing the plan.

What are the different types of immediate annuities?

Immediate annuities can be of three types:

  • Fixed payout immediate annuities: In this type, you receive a predetermined, fixed amount at regular intervals
  • Inflation-indexed immediate annuities: These annuities adjust the payments periodically based on changes in the cost of living and inflation
  • Variable immediate annuities: Variable annuities allow you to invest your money in a variety of funds. The payouts vary as per the performance of the funds you invest in

Can I customise the payout options of my immediate annuity?

Yes, immediate annuities often provide customisation options. You can select the duration over which you receive payments and customise the plan to your specific financial needs. Additionally, you have the flexibility to determine the value of your payouts based on your preferences and requirements.

Are immediate annuity payouts taxable?

Yes, immediate annuity payouts are subject to taxation*. These payouts are categorised under the head 'Salaries' for tax purposes. It is essential to be aware of your tax obligations and plan accordingly. You can use an immediate annuity plan calculator to check this.

What happens to the remaining funds if I pass away early in an immediate annuity?

In the unfortunate event of the policyholder's early demise, any remaining funds are typically passed on to designated beneficiaries. Beneficiaries may receive the remaining amount as a lump sum or in instalments, depending on the terms and conditions of the annuity contract. This is why adding a beneficiary to the annuity plan is advised to ensure a seamless transfer of your assets to your loved ones.

Can I change or cancel my immediate annuity once it's initiated?

The ability to change or cancel a new immediate annuity plan depends on the specific terms and conditions outlined in the policy. You can directly contact the insurance company to obtain accurate information on the same. It is also advisable to review the terms and conditions at the time of purchase and inquire about any potential modifications or cancellations to avoid hassles later.

Who should buy an immediate annuity plan?

Immediate annuity plans are suitable for individuals who require immediate funds in retirement. They are particularly beneficial for those nearing retirement age, as they offer a reliable and quick income stream.


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*Tax benefits are subject to conditions under Section 80C, 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 more details.



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