An immediate annuity plan is an insurance policy that offers individuals a regular income stream in exchange for a lump sum payment to an insurance company. It is mandatory to allocate 40 per cent of the corpus received from the National Pension System (NPS) towards the purchase of annuities. The lump sum received from the Employees' Provident Fund (EPF) upon retirement can also be utilized to purchase an annuity.
Immediate annuities provide several benefits. Upon purchasing the plan, the insurance company promptly initiates regular income payments to the policyholder. These plans do not involve any investment risk as the insurance company guarantees the payouts. The payout remains unchanged throughout the plan's duration, protecting investors from fluctuating interest rates. Customers can also opt for the joint-life option, ensuring a lifetime payout for their spouse. It is advisable for married individuals to purchase the joint-life option to ensure her/his financial well-being even after the policyholder's demise.
One drawback of annuities is that their payouts are constant and not adjusted for inflation, meaning that the real value of the income stream will diminish over time.
Immediate annuities are also illiquid. While it may be possible to exit certain options and retrieve the principal amount, one would typically incur a significant penalty. In some options, exit is not permitted.
This story is from the June 2023 edition of Investors India.
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This story is from the June 2023 edition of Investors India.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
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