Types of Annuity Pension Plans

At a subconscious level, we all are programmed to seek some kind of security, guarantee, or warranty whether related to any products, services, or investments.

Post-retirement, everybody wants to have a lifetime pension to cater to our routine expenses. That is why Life Insurance Annuity Plans are very popular because of the following two reasons:

a) We get a kind of certainty in cashflow post-retirement i.e. pension for a fixed amount per month

b) And this is not subject to the market performance & volatility

If these criteria are required to meet out, one can look for the following annuity plans from any of the life insurance companies.

i) Immediate Annuity

In an immediate annuity, you start receiving regular cashflow payments (pension) immediately from the insurance company. The premium (initial deposit) is to be paid in a lump sum in one installment only.   

   
ii) Deferred Annuity

In a deferred annuity, you pay a one-time lump sum premium or a limited premium amount for some time period or regular premium contributions to the insurance company till the vesting age or defined time period. The funds go on accumulating along with the interest till the vesting date. At the time of vesting date or age, the policyholder has the option of encashing 1/3rd of the accumulated funds (tax-free) in a lump sum and the balance 2/3rd is utilized for the purchase of annuity pension (taxable) under any of the six options mentioned below. 

There are the following types of option under the Annuity plan available as of date: 

1) Annuity for Life (w/o return of purchase price)

2) Annuity for Life (with a return of purchase price)

3)  Annuity guaranteed for a certain period (5, 10,15 or 20 years)

4) Annuity guaranteed for a certain period and for life thereafter

5)  Life annuity with joint-life till last survivor annuity

6) Increasing annuity at a fixed rate

Please note, once the option been selected by the annuitant (an annuitant is an individual who is entitled to receive the regular payments of a pension), cannot be changed thereafter. So be careful and select the option which fulfills your requirement in a better way. 

To mitigate longevity risk of life, an annuity provides the best support to an individual.