Defined as a contract between you and the insurance company in which you make a one time or a series of payments and in return, you obtain regular disbursements beginning either immediately or at some point in the future.
The main purpose of any annuity plan is to offer you a steady stream of income during retirement. There are various types of annuity plans available for individuals, including Variable Annuity, Immediate Annuity, Fixed Annuity and Fixed Indexed Annuity plan.
Annuity insurance plans offer you coverage against any risk that may arise during your retirement or old age, these include income replacement, inflation and investment risk.
Here are five things you must know about annuity plans:
1. There is a difference between immediate and deferred income annuity plans
One of the main things you need to understand about annuity plans is that you can opt for plans that offer payouts that start in the future (deferred income annuity plans) or you can opt for plans that offer payouts that start immediately (immediate income annuity plans).
When talking about deferred annuity insurance plan, individuals start to receive payments at a future date or age that has already been agreed upon. Hence, under such an insurance plan, regular investments are collected until the pre-decided age or date. Policyholders can make the payments for deferred income annuity plans as a single-time premium payment as well.
The Future Generali Immediate Income Annuity Plan offers you a range of benefits, including a fixed annuity for the rest of your life. In case of your unfortunate demise, the purchase price is paid to the nominee and the policy terminates. Under the plan, you have the flexibility to choose a monthly or yearly payout mode.
In fact, the policy also offers you an annuity card that ensures convenience in receiving the annuity amount. Under the Future Generali Immediate Income Annuity Plan, you decide your own purchase price. This means that you decide the single premium amount that you wish to invest, for receiving a lifelong annuity.
2. Variable Annuity Plans come with an investment risk
When talking about variable annuity plans it is important to remind yourself that there is an investment risk involved in such plans. In such a plan, you can opt to park your investment in a variety of asset classes ranging from conservative low risk instruments such as guaranteed fixed accounts, and government bond funds to riskier investment instruments such as growth, small cap, mid cap, large cap, capital appreciation, aggressive growth, and emerging markets investments.
You also have the option of investing in more balanced funds. Although such plans do have a minimum guaranteed annuity, there is still a risk involved, and you will be charged a fund management fee. The key thing to understand here is that the rate of return you will receive on your annuity will depend on how your funds will perform. However, you do have control over the kind of instruments you invest into, making them risky or low risk as per your appetite and financial goals.
3. Most annuities for an early withdrawal penalty
Like most insurance policies, annuities are long term policy contracts and if you withdraw your policy earlier than the outlined you will have to pay surrender charges. The surrender period of your annuity will vary from 2-10 years and typically the charges associated with the same decline as time passes by.
4. You can add riders to your annuity plans
Just like any other insurance policy, you can add riders to annuity plans to enhance the policy. Riders for annuity plan provide benefits at an additional cost and can be living riders or death benefit riders.
Living riders provide benefits while the annuitant is still alive while death benefit riders provide benefits for the nominee of the policy.
5. Most annuity plans come with a free look period
A free look period is essentially a time period as defined in your contract during which you can get a full refund of your plan if you do not like the annuity plan you have signed up for. Look periods vary from insurer to insurer but can vary between 10-30 days.
Ensure you use this period to determine if the policy you have chosen is apt for you.
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