Ch. 10: 13 Things to Consider Before Buying Annuity Plans

If you’re looking for investment products that will help secure your retirement financially, then you can consider investing in Annuity Plans sold by insurers.

Annuity Plans offer regular payouts to you in your retirement years in exchange for the premium amount you pay. Basically, there are two types of Annuity Plans -

• General Annuity Plan: Here, you’re required to pay the premium amount in several instalments.
• Single-Premium Annuity Plan: Here, you just need to make a single premium payment.

Both these plans will offer regular income to you after you retire. Before you invest in any one of these plans, there are some things you need to keep in mind - so that you don’t face any hassles after you retire. We take a look at these things - in this article.

So, let’s begin!

केवल इसलिए खरीदें क्योंकि आपको इसकी आवश्यकता है

यह पहली और सबसे महत्वपूर्ण बात है जिसे आपको ध्यान में रखना चाहिए।

आपको उस उम्र का अनुमान लगाना चाहिए जिस उम्र तक आप रिटायर होने की योजना बना रहे हैं। सोचें कि क्या आप इस उम्र तक पर्याप्त धन या संपत्ति बनाने में सक्षम होंगे जो आपके रिटायर होने के बाद आपको वित्तीय रूप से सहायता करेगी। यदि आप ऐसा करने में सक्षम हैं, तो आपको एन्युटी योजना में निवेश करने की आवश्यकता नहीं है।

यदि आपको लगता है कि आपको अपने रिटायरमेंट के वर्षों में एक स्थिर आय प्रवाह की आवश्यकता होगी, तो आपको एन्युटी योजना में निवेश करना चाहिए।

Next, you must know how much amount you want to invest in the Annuity Plan.

If you’re nearing retirement, and have a large chunk of money, you can choose to invest in a Single-Premium Annuity Plan. In case you want to invest your money systematically and regularly, you can buy a General Annuity Plan.

The money you invest in these plans gets converted into an annuity, i.e., a steady stream of income. And, the larger amount of money you’ll invest, the greater annuity or income you’ll receive regularly.

Annuity rate is one of the most important things you must consider while purchasing the Annuity Plan.

The income or annuity that you’ll receive periodically under an Annuity Plan is determined through an annuity rate offered by insurers at the time of purchase. This annuity rate gets locked in and will remain fixed for the entire duration of the plan. And, the money that you invest is converted into annuity as per this annuity rate.

The annuity rate may be different for different insurers - it can be different for different plan options offered by the same insurance company as well. So, ensure you check and compare the annuity rates before finalising a plan. Generally, the higher the annuity rate, the higher the annuity you’ll receive.

You can configure when you want to start receiving the payouts under the Annuity Plan. Basically, there are two options available -

• Immediate Annuity Option:

  Here, you’ll start receiving the annuity immediately after you complete the premium payment.
  

• Deferred Annuity Option:

  Here, you can choose to delay the annuity payouts. You can opt to receive the payouts after a specific period of time, known as the ‘deferment period’

Based on your requirements, you’ll have to decide when you want the annuity payout under your plan to begin. If you want to delay the payout, make sure you check if the deferment period you want to choose is available with the plan you want to buy.

Under General Annuity Plans, you can choose the duration for which you want to pay the premiums and how frequently you want to pay them.

You can customise the premium payment term as per your convenience. You can choose to pay the premiums for 5 years, 10 years, 15 years, and so on. (This can be different for different products.)

You can also customise the frequency of the premium payment. You can choose to pay the premiums monthly, quarterly, half-yearly, or yearly based on your comfort.

Please note:

1- Options to customise the premium payment term and frequency will be available only in General Annuity Plans because, in Single-Premium Annuity Plans, you need to make just one single premium payment.

2- Irrespective of the premium payment frequency option you choose, ensure you set up auto-debit or standing instructions on your bank account so that your premiums are paid on time and your policy doesn’t lapse.

Insurance companies allow you to customise for how long, and how frequently you want to receive the annuity or the regular stream of income under the plan.

You can choose to receive the annuity payouts for a lifetime or for a specific period of time. And, you can choose to receive them monthly, quarterly, semi-annually, or annually.

In case you want to opt for a particular option, ensure you check if it is available in the Annuity Plan you’re considering buying.

Besides the premium payment and annuity payout options, Annuity Plans also offer other options so that it can be customised as per your needs.

Some plans, for instance, offer the Increasing Annuity Income Option, where the annuity you’ll receive every year will keep on increasing by a specific percentage. Then, some plans also allow you to add your spouse to the plan. In case you pass away before the payout period ends, the insurer will pay the annuity to your spouse.

So, check if the above customisation options are available with the plan you want to buy.

These are provided when you opt to surrender, i.e., discontinue your Annuity Plan.

Although an Annuity Plan helps in securing your retirement life financially, there might be a situation where you want to discontinue it. Maybe because you’re dissatisfied with the regular income or annuity paid by the plan. Or maybe because you’re getting a significantly higher annuity rate than the one you locked in under the same or some other Annuity Plan.

As important as it is to know about the benefits the Annuity Plan will offer, it is equally important to be aware of the benefits you’ll lose if you discontinue it.

Free look period, as the name implies, is the period during which you can freely look over the Annuity Plan you purchased. And, in case you’re not satisfied with the plan you’ve just bought, you can return it to the insurance company - without paying any penalty or cancellation charges.

The length and terms and conditions of the free look period offered under Annuity Plans may differ from insurer to insurer. So, ensure you check them before going ahead and making the purchase.

If you fail to pay your premiums within the due date given by the insurer, they will offer you a grace period, i.e., an additional time frame to make the outstanding premium payments. In case you fail to pay the premiums within the grace period, your policy will lapse. After the grace period is completed, insurers offer a revival period of 5 years during which you can get your lapsed policy back.

A grace and revival period is available only under a General Annuity Plan - and not under a Single-Premium Annuity Plan. And, the conditions for both grace and revival periods may vary from insurer to insurer. Hence, it is important that you check this before making the purchase.

Some General and Single-Premium Annuity Plans also offer a death benefit, i.e., a fixed amount of money to your nominee if you pass away while the policy is active.

In case you buy such a policy, you’ll also have to identify a nominee (or multiple nominees). The nominee you choose will receive the death benefit in the unfortunate event of your death.

Your nominee can be your -

• Spouse
• Children
• Siblings, etc

An Annuity Plan will act as a financial cushion in your retirement years. Hence, it is absolutely necessary that you do thorough research about the plan you’ll buy and the insurer you’ll buy from - so that there are no hassles later on.

Before you go ahead, ensure you compare the annuity rates, features, customisation options, etc. of various Annuity Plans. You can also check the reviews of previous policyholders to get a better picture of how good or bad the insurer’s services are.

An Annuity Plan is specially designed to meet your long-term retirement needs. However, a small mistake while buying the plan can cost you dearly in the future - after you retire.

Hence, it is important that you consult a good, experienced financial advisor who will assist you at every step - before, while, and after you invest in an Annuity Plan. And, help you in case you or your nominee face any hassles in receiving the annuity payouts, death benefit, etc.

So, these are the things you must evaluate before buying an Annuity Plan. These things will help ensure that you don’t face any hassles after the purchase is made, and you enjoy a worry-free retirement.

The penultimate decision, before you pay your first premium, is choosing where you should buy your retirement plan from. The next article lists down the various sources and their pros and cons. Have a look!