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Is Deferred Annuity Suitable for Long-Term Savings?

Updated On Jun 28, 2021

A deferred annuity is designed specifically for long term savings. It is an insurance contract that does not start paying you immediately. Investors can definitely delay the payment, though, during this time period, the earnings on it are tax deferred. You can increase the annuity's value by adding funds to the account. The best part of this investment option is that you can withdraw a lump sum amount from it whenever needed. 

The charges you pay to the annuity company are in the form of income taxes, surrender charges, withdrawal charges and penalty taxes. An essential aspect of deferred annuities is their annual fees. About 1% of the assets per year, is charged as rider and sub-account management fees. Therefore before making any decisions regarding this investment, you must review all the details with qualified tax professionals. It will help you to make the right and informed decision regarding investment.

Benefits of Deferred Annuity In Long-Term Savings

Deferred annuity allows you to control the money and open up all the options. Let's read further to know more about the benefits of deferred annuity: 

1. Multiple Options of Payout

You can choose from different payout options available with your insurance company when you choose to annuitize. There are options to choose the funds that cover your lifetime only or cover your spouse's life as well. 

2. Delay In Payments

In a deferred annuity plan, the annuity is paid to the individual after the completion of the deferred phase. This means that you need to wait before taking any action on payments of the annuity. In a deferred annuity, you can wait forever to annuitize and start the payment or take out the payment in lump sum whenever you want later. 

3. Ease In Adding Funds

Before you annuitize, you go through the accumulation phase. In this phase, you add funds to the account if the tax allows and your insurance company allows you to do so. Sometimes, you can add a lump sum amount or leave the account without adding anything. However, you must follow all the rules regarding the accumulation phase. 

4. Ease In Withdrawal of Funds

Once the accumulation is over the payout phase starts. In this phase, you have the option to choose different ways to receive the funds or simply you can indefinitely defer the annuity. When you choose to receive the payment in lump sum, then that is taxable which means if you want to take out your money all at a time, you have to pay a tax on the amount. Systematic withdrawal is also a way of receiving the payment which means you can make a periodic withdrawal. The annuitization method will pay out regularly for a period of time until the owner's death or the spouse whichever is later. 


By reading the above article you can make an informed decision that you should invest in a deferred annuity as a long term investment or not. Investing in Deferred Annuity has both pros and cons. It is suitable for long term investment or not completely depends on your retirement priorities, risk tolerance and financial goals. 

Also read - Should Senior Citizens Purchase Term Insurance Plans? 

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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