Picture yourself planting a tree. After years of tender care, the tree now produces fruit regularly. In the same way, an annuity plan provides you with a consistent income stream for the rest of your life in return for a lump sum payment or a series of instalments.
So, what is annuity (or annuity plan)? It is a financial concept or plan where you make regular payments and receive a predetermined amount of money either immediately or in the future on a yearly, half-yearly, quarterly, or monthly basis.
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We will understand annuity’s meaning with an example. Consider this: Mr Daksh buys a retirement plan where he pays a lump sum to an insurer before he retires at the age of 60. In return, they guarantee a regular monthly income for life after he retires. This provides him with financial stability after the age of 60.
It depends on the type. Some kinds of annuity last for a set period (like 10 or 20 years), while others, called lifetime annuities, provide income until your demise.
Life insurance provides a financial safety net for your family after your death. An annuity is a type of pension plan that provides a financial safety net for yourself to ensure a regular income while you are alive, usually after retirement.
Life insurance and annuity plans are not the same. They are financial concepts with differing goals. Life insurance provides financial support to your loved ones after your demise. An annuity’s definition involves a financial product providing a regular stream of income after retirement.
Yes, you can consider an annuity plan as a type of pension plan. Opting for an annuity plan allows you to enjoy a continuous stream of income, i.e., a regular pension, after your retirement.
The best age is before, during, or after retirement (e.g., 60-65 years). Buying too early may lock your current funds, while buying too late might result in a lower monthly payout due to shorter life expectancy.
The payout is calculated by the insurer on the basis of factors like the annuity rate, the premium amount, age, gender, and the chosen annuity type. You can use online annuity calculators provided by insurers to get an estimate.
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