Life Annuity Plan

Let us understand Life Annuity in detail.

What is Life Annuity?

Life Annuity meaning can be understood as a periodic retirement corpus payout made to the policyholder until their death. These life annuity funds help the annuitant/ policyholder receive regular pension or supplementary income for their financial commitments post-retirement.

Types of Life Annuity Schemes

Life annuity pension plans come in different forms with their specific benefits and purpose. Let us learn some of them in the table below:

Features of Life Annuity Plan

Let us look at the following features of life annuity plans:

1. Offered by Insurance Companies

   Life annuity deposit schemes are generally offered by insurance companies but they are not necessarily insurance plans.

2. Pay Premium Amount While Earning

   The annuitant/ policyholder pays a one-time premium or in instalments for a term period during their productive years to fulfil the conditions of a life annuity plan.

3. Secure Pension Income

   The life annuity amount supplies continuous pension income during the retirement years.

4. Premium Payment Types

   One can purchase annuity plans by paying the premiums in the following modes:

   Premium Payment Type	Details
   Single Premium	Lump-sum premium is paid once
   Regular Pay	Premium is paid periodically till the time you retire
   Limited Pay	Premium is paid for a fixed period only, which may not coincide with the time you decide to retire

5. Premium Payment Frequency

   One can choose to periodically pay the annuity premium amounts with the following options:

   • Yearly

   • Half-yearly

   • Quarterly

   • Monthly

6. Tax Exemption Benefits

   Section 80 C, 80 CCD, and 80 CCC of the Income Tax Act, 1961 allows for tax exemptions up to Rs. 1.5 lakhs for the maturity benefits from the annuity schemes.

How Does a Life Annuity Work?

Let us understand the working of a life annuity plan in the following ways:

• Transferring Risk: The annuity plan shifts the risk of the policyholder living longer than his/her pension savings to the insurer.

• Deferment Stage: The policyholder deposits lump sum or periodic premiums in their annuity fund.

• Annuity Payout Stage: The insurer gives pension payouts to the annuitant or the beneficiary till he/she is alive.

• Periodic Annuitization: The annuity payouts are made usually monthly, or as per the policyholder’s choice of quarterly, half-yearly, and yearly or lump sum payout.

Benefits of Life Annuity Plans

The points mentioned below highlight the benefits of buying the best annuity plans in India for an investor:

• Gives you a guaranteed income from the time you retire until your die

• Gives you financial freedom even after your regular income stops after you retire

• Enables you to cover your financial commitments of travelling, healthcare expenses, hobbies, and more even after you are retired

• Offer you a range of pension plan options such as joint life and deferred annuity to choose from depending on your requirements.

• Pension funds grow without paying taxes till your regular payout start

Points to Consider For Purchasing a Life Annuity Plan

The following points must be given special attention before buying life annuity products:

• Start Investing Early: The earlier you start the bigger will be your pension fund size. Also, this will need you to make smaller amounts of periodic payments in your pension fund.

• Consider Standard of Living: Decide on the annuity fund size as per your standard of living.

• Analyse Financial Commitments: Plan the annuity payouts structured around your financial commitments in the future like loan repayments, marriage, and healthcare.

Bottom Line

Life annuity plans are the best plans for a guaranteed periodic income post-retirement. The caveat with this plan is that these plans are not inflation-indexed; lowering the purchasing power of your annuity funds by the time you retire. 

It is crucial before buying an annuity plan to judge the pros and cons as per their requirements before investing their life savings in a life annuity plan.

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