Annuity Plan

What Is Annuity Plan?

An annuity plan is a financial contract between you and an insurance company where you pay a premium (lump sum or regular payments) and in return, the insurance company guarantees you regular income for a specific period or lifetime.

Simple Analogy: Think of it as "I give you money today, you give me monthly salary for life" - it's essentially converting a lump sum into a predictable monthly pension.

Key Concept: Annuity plans work in two phases :

• Accumulation Phase: You invest money (lump sum or regular payments)
• Distribution Phase: You receive regular income payments

Types of Annuity Plans in India

1. Based on Payout Timing

Immediate Annuity

• Description: Income starts within 1 month of investment
• Payment: Single lump sum premium
• Best For: Just retired individuals needing immediate income
• Rate Range: 6.0-7.5% annually
• Example: Invest Rs. 10 lakh at age 60, get Rs. 5,833 monthly immediately (~7% Return)

Deferred Annuity

• Description: Income starts after a chosen deferment period (1-20 years)
• Payment: Lump sum or regular premiums during accumulation
• Best For: Young investors planning future retirement (5-10 years away)
• Rate Range: 6.5-8.0% annually (higher due to growth period)
• Advantage: Investment grows during deferment period

2. Based on Coverage

Single Life Annuity

• Coverage: Only the primary annuitant
• Rate Range: 6.5-7.5% (highest rates)
• Best For: Single individuals wanting maximum pension
• Risk: Payments cease on death

Joint Life Annuity

• Coverage: Two people (usually spouse)
• Options:
  • 50% continuation to survivor
  • 100% continuation to survivor
• Rate Range: 5.5-6.5% (lower due to dual coverage)
• Best For: Married couples wanting spouse protection

3. Based on Return Type

Fixed Annuity (Most Common)

• Returns: Fixed, guaranteed payments
• Rate Range: 6.0-7.5%
• Best For: Risk-averse investors wanting predictable income
• Advantage: No market risk

Variable Annuity (ULIP-based)

• Returns: Linked to market performance
• Rate Range: 4.0-12.0% (depends on market)
• Best For: Risk-takers wanting higher potential returns
• Risk: Returns can fluctuate

Inflation-Protected Annuity

• Returns: Payments increase annually (3-6%)
• Rate Range: 4.5-6.5% (starting rate)
• Best For: Long-term retirees worried about inflation
• Advantage: Purchasing power maintained over time

4. Based on Duration

Life Annuity

• Duration: Entire lifetime
• Rate Range: 6.0-7.5%
• Best For: Those wanting guaranteed lifetime income

Term Certain Annuity

• Duration: Fixed period (5-20 years)
• Rate Range: 7.0-8.5% (higher as limited duration)
• Best For: Those wanting income for specific period only

5. Special Features

Annuity with Return of Purchase Price (ROP)

• Feature: Original investment returned to nominees on death
• Rate Range: 5.4-7.2% (lower due to capital protection)
• Best For: Want to protect capital for heirs

Annuity with Guarantee Period

• Feature: Guaranteed payments for 5/10/15/20 years minimum
• Rate Range: Decreases with longer guarantee periods
• Best For: Family protection with guaranteed minimum payments

Rate of Returns in India (2025)

Comprehensive Annuity Plans Overview - Rates by age/gender, provider rankings, and plan type distribution in India 2025. Rate of Returns in India ranges from 6% to 8%.

Key Insights:

• Rates increase with age (higher mortality = higher returns)
• Males get slightly higher rates than females (actuarial differences)
• Life annuity offers highest rates (no capital protection)
• Joint life has lowest rates (covers two lives)

Sample Monthly Pension Calculation:

Rs. 10 Lakh Investment:

• Age 60: Rs. 5,833/month (7.0% annually)
• Age 65: Rs. 6,417/month (7.7% annually)
• Age 70: Rs. 7,000/month (8.4% annually)

Key Benefits of Annuity Plans

Financial Security Benefits:

• Guaranteed lifelong income (eliminates longevity risk)
• Protection against market volatility (fixed returns)
• No investment limits
• Spouse/family protection through joint life options

Tax Benefits :

• Investment: Deduction under Section 80CCC (up to Rs. 1.5 lakh combined with 80C/80CCD)
• Growth: Tax-deferred during accumulation phase
• Income: Taxable as "Income from Other Sources" at applicable income slab rates

Flexibility Features:

• Flexible payout options: Monthly, quarterly, half-yearly, annual
• Return of Purchase Price (ROP) protects capital for heirs : suggested
• Loan facility available after 3 years (on select plans) : Not suggested
• No medical examination required in most cases
• Nomination facility available

Comparison with Other Retirement Options

Investment Option	Returns	Safety	Liquidity	Tax Benefits	Income Duration
Annuity Plans	6.0-8.0%	High	Low	Yes (80CCC)	Lifetime
SCSS	8.2%	Very High	Moderate	Yes (80C)	5+3 years
POMIS	7.4%	High	Moderate	No	5 years
Bank FD (Senior)	6.5-7.5%	High	High	Limited	Flexible

When to choose Annuity Plans

Ideal Candidates:

• Recently retired with lump sum (PF, gratuity, investment maturity)
• Those seeking lifetime income (longevity protection)
• NPS subscribers (40% mandatory annuity purchase)

Not suitable For:

• Young investors with 20+ years to retirement (better growth options available)
• Risk-takers wanting higher returns through equity/mutual funds
• Those needing liquidity (annuities have poor liquidity)
• High tax bracket individuals (annuity income fully taxable)

Process to Purchase Annuity

Documentation Required :

• Age proof (Aadhaar, PAN, passport)
• Identity proof and address proof
• Income proof (if required)
• Medical reports (if above certain age/amount)
• Nominee details
• Bank account details

Purchase Process:

1. Compare rates across providers using online calculators
2. Choose annuity type based on needs (immediate/deferred, single/joint life)
3. Submit application with required documents
4. Pay premium (lump sum or as per plan)
5. Receive policy document and schedule
6. Start receiving income as per chosen frequency

Recommendation: Always compare Return% from multiple providers and use annuity calculators to determine the best fit for your retirement goals and risk tolerance.

Regards,

Honvest Team.