Saturday, 11 February 2017

What are Annuities and its Types - Ultimate Guide

When we start earning most of us are hardly aware of the various sections of taxation of various investment options and it is one set option we remain inherent about a major portion of an early earning days. So lets get introduced to Annuities.


What are Annuities

Annuities are Investment products offered by insurance companies to get a regular stream of income in retirement days. At a border level, there are two types,

1. Immediate
2. Deferred 

In immediate annuity plans, an individual needs to invest a lump sum amount in the insurance plan and you would immediately start getting a fixed return at regular intervals. There is no need to wait for retirement. 

In case of deferred annuity plans, individuals need to invest a fixed amount regularly and the payment would not happen immediately. The amount could be accumulated till his retirement and would be paid out at a later date. The way it would be paid out depends upon his annuity plan. 


Types of Annuity

Again, there are two types,

1. Guaranteed Annuity
2. Variable Annuity 

In case of Guaranteed Annuity, there is a fixed rate of interest paid out for the annuity period. In case of a Variable Annuity, the returns depend on the returns on the underlying assets. You have a choice to choose from a conservative, moderate and aggressive portfolio.

Based upon the Payout options there are different types of annuities, First one is Life annuity in which a predetermined periodic payout till the time annuitant is alive is given out. 

Next is Life annuity with purchase price returns, in this life annuity is given to the annuitant till the time he is alive and upon his death the originally paid amount is given to his nominee. 

The next is Joint life, the last survivor without the purchased price returns. In this annuity the wife gets the pension after the death of the annuitant. 

Next one is, Joint Life, The Last Survivor with the Purchased price returns. This is same as "joint life" but in addition, after the death of the last survivor the original paid amount is returned to the nominee.

Last type is Life annuity guaranteed for 5/10/15 years and thereafter. In this guaranteed annuity is paid for the chosen term that is (5/10/15 years) even if the annuitant is not alive. After that annuity continues as long as the annuitant is alive.