Life insurers offer deferred and immediate annuity plans.
In order to ensure a post-retirement regular income, one has to accumulate wealth which can be turned into an annuity at a later stage. Annuity products of life insurance and National Pension System (NPS) can help secure such an income.
Also Read– Want to invest your salary? Here are 5 best investment options in 2023
Annuity from life insurance
Life insurers offer deferred and immediate annuity plans. In a deferred annuity plan, you will pay regular premium for a defined period or a single premium. After retirement, you will get pension from the corpus accumulated during the working years.
Such a policy is ideal for those who are young as the premium will be low. In fact, starting early will result in a huge corpus. During the accumulation period if the insured dies, then the nominee will be paid out a lump sum. If the insured lives through the accumulation phase, he can convert the maturity amount into an annuity. A deferred annuity also offers the customer the option to withdraw one-third of the corpus tax-free as a lump sum and convert the remaining two-third into an annuity.
Read More: Retirement Planning: Why Investing Early Is Important For You?
In an immediate annuity plan, you can invest a lumpsum to buy an annuity and will start getting pension immediately after paying the premium to the life insurer. Such a policy works for those who have got a corpus from investments such as Public Provident Fund, Employees’ Provident Fund, gratuity payout, accumulated corpus from NPS and even from sale of real estate.
You can opt for a fixed annuity or a variable annuity. In a fixed annuity, the amount to be paid by the insurer will be the same till the annuitant survives. A variable annuity is suitable for those with a risk appetite as it is market-linked.
Annuity from NPS
In NPS, 60% of the lumpsum amount is received by subscribers at the time of maturity and the balance is to be invested for purchasing annuity from an empanelled life insurance company. Life insurers offer five types of annuity plans such as annuity for life for the subscriber, annuity for life of the subscriber and then to the spouse after the subscriber’s death, annuity for life and purchase price returned after the death of the subscriber, etc.
Read More: Fixed Deposit (FD) Interest Rates: Do Small Finance Banks give better returns than Post Office?
Annuity earnings are taxable at the marginal rate of the individual.
