5 Major Reasons Why You Need Annuity Insurance| Template

What is annuity insurance?

An annuity plan, as the name implies is the reverse form of life insurance. It is a financial instrument issued and backed by an insurance company that provides guaranteed monthly income payments for the life of the contract, regardless of the market situation.

In life insurance, the individual pays small contributions, called premiums, in order to receive a lump sum later, called sum assured. In annuities, the individual pays a lump sum in order to receive smaller amounts called annuities, for as long as the contractual terms permit. The small amounts are streams of income paid at stated time intervals, usually, to the policyholder. The size of the “income” depends on the amount of lump sum paid and the policy conditions. In this regard, a number of variations exist.

Annuity plans transfer all the risk of a down market to the insurance company. This means you, the annuity owner, are protected from market risk and longevity risk, that is, the risk of outliving your money.

To offset this risk, insurance companies charge fees for investment management, contract riders, and other administrative services. In addition, most annuity contracts include surrender periods during which the contract holder cannot withdraw money from the annuity without incurring a surrender charge.

Do you know if an annuity plan is an option worth seeking?

Let us look at the following consideration.

a. Annuity plan policy offers you a fixed income for the rest of your life, which means financial freedom for your sunset days.

b. You have the flexibility to choose a monthly or yearly payout mode.

c. You receive tax benefits as per the current tax provisions.

d. Some insurers offer a Free Look period, whereby the policyholder has a period of 15 days from the date of the receipt of the policy document to review the terms and conditions of the policy and where the policyholder disagrees with any of the terms and conditions, he/she has the option to cancel/withdraw and return the policy stating the reasons for his/her objection.

e. Option to choose between Life Annuity and Life Annuity with the return of Purchase Price

A little number of variations exist in different types of annuity

1. Immediate annuity: As the name implies, It is an instant plan, where the annuitant starts receiving the annuity automatically when the lump sum (a single lump sum covering the annuities) is paid. It entails that the annuity capital starts coming immediately after the purchase of the plan. Annuities may start in practice say after six months and continue till the death of the annuitant. These plans are best suited for individuals nearing retirement age wanting to reap the benefits of their investment.

2. Deferred annuity: Here, the income payments start at a later date usually some years after the plan might have been agreed upon. For this, a single lump sum may secure the annuities. However, lump sums of smaller amounts are paid periodically to the insurance company. The plans are typical insurance annuity plans with life cover. In the case of the buyer’s demise, the nominee receives a lump sum amount.  The periodic payments may cover a span of years as long as say 15 years.

3. Guaranteed annuity: In this plan, the payable income stops at the exact period of time  “guaranteed” or on the death of the annuitant, considering the one that comes first.

4. Reversionary annuity: This is a payment of income annuity, to say the wife, on the death of another, say the husband. This annuity as the name entails reverses from one individual to the other.

5 Major Reasons Why You Need Annuity Insurance

Annuity insurance plans are a neat way to plan for retirement. They offer reasonable returns, savings against inflation, and tax benefits. However, let’s look at the 5 major reasons why you need annuity insurance.

1. Protection of Capital 

Most annuity plans are designed keeping inflation in mind, rising medical expenditures, etc. This provides a safe investment option and shields against inflation over a period while building a corpus for retirement.

2. Wealth builder

Insurance investments are designed to gain from the dynamics of movements in the financial markets to give you superior returns in the targeted period. You can also avail of higher annuity installments for the increased purchase value. If you purchase an annuity online, your annuity rate will increase by 2%. For NPS subscribers that have purchased through the sales team or online channel, Canara HSBC Life Insurance offers an increase in annuity rates by 1%.

3. Principal Amount (protection)

The principal amount invested is protected in an annuity plan. This means that you can choose any mode of investment or payout. The minimum guaranteed# return will not go below the principal amount, thus ensuring that the buyers of the insurance annuity plan will at the least get the principal invested back.

4.  Reliable Saving capacity

To manage post-retirement expenses, you may save some amount each month from your current income. But saving alone may not help you reach a corpus that you have to, to sustain your standard of living even after retirement.

The saving should also work hard so that it grows multi-fold by the time you retire. Annuities are among the safest available financial instruments that create wealth as stocks do, but with much lesser volatility and risk. You can choose the frequency of payouts and opt for monthly, quarterly, half-yearly, or yearly streams.

5. Constant Liquidity:

Almost all annuity plans promise a lifetime of payouts. This is particularly helpful when you do not receive regular income. This pension-like payout makes the routine life of the buyer comfortable.

Who is Due to Purchase Annuity Plan?

Annuities are appropriate financial products for individuals seeking stable, guaranteed retirement income or a consumer seeking a sure guaranteed income for life. Because the lump sum put into the annuity is illiquid and subject to withdrawal penalties, it is not recommended for younger individuals or for those with liquidity needs to use this financial product. Annuity holders cannot outlive their income stream, which hedges longevity risk.

Finally

An annuity plan is a contractual financial instrument issued and monitored by the existing insurance company that provides stipulated (guaranteed) monthly income payments for the existing life of a contract not considering the market situations.

Most importantly, annuities come in two basic configurations: immediate or deferred.

The option you select will depend on your financial goals. If you want to begin receiving annuity payments right away, you will choose an immediate annuity.

Alternatively, if you would like to set your payments to begin at some point in the future, you will purchase a deferred annuity and specify the start date in your contract.

An annuity plan is the easiest way to plan for retirement. It is recommended especially in those cases in which a person has a large sum of money in hand but is unsure of how best to invest it clearly, investment have their own risk of loss.

 

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