Annuity plans: Here’s all you need to know

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You have worked hard your entire life. Now you want to hang your boots but wondering where to invest your retiral benefits to earn a stable and regular income for sunset years. For you, annuity plans can be an option. Annuity or pension plans can either be bought when you are closer to retirement or during mid-career for accumulating a corpus with which you can buy an annuity later. If you have already accumulated the corpus you can buy an annuity immediately.

Here is a guide on what annuity plans are and popular types of annuity plans:

Return of premium plans

There are plans where the money used to buy the plan is returned to the nominees on the death of the annuitants. This is called Return of Purchase Price option (ROPP). In non-ROPP option no money is paid back to the nominees on the death of the annuitants. In ROPP interest rate is slightly lower than non-RoPP. However, ROPP is suitable for those who want to leave behind some wealth for the next generation.

Single or joint plan

You can either buy a single life option or a joint-life option under annuity plans. The single life option covers only one life under the plan and the policyholder continues to receive pension throughout the life. In the joint-life option, both husband and wife get covered and the secondary annuitant continues to receive pension even after the death of the primary annuitant.

Type of annuity plans

Once you decide whether you want a single or joint annuity plan, you need to decide the type of cover. Here are the options:

Immediate life annuity

Here the insurer starts paying you pension once one buy the plan and annuity is paid as per the frequency opted. You can choose ROPP or non-ROPP option as per your convenience and suitability.

Deferred life annuity

Under these plans, you first build up the retirement corpus by investing for a certain number of years and after the deferment period, the insurer starts paying you annuity as per the frequency chosen. The deferment period may be between 1 to 10 years as chosen at inception.

You need to choose the retirement plan as per your needs and requirements.