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Understand The Difference Between Types Of Annuities In India

Updated On Jan 18, 2022

There was a time when pension-eligible salaried workers looked forward to retirement. They didn't have to be concerned about their pensions failing to meet their needs because, in most cases, their pensions were linked to their most recent earnings. Thanks to the defined pension they received, they were financially secure.
The cost of living, on the other hand, has risen dramatically in recent decades, disturbing even the most well-laid retirement plans. Defined benefit pensions are being phased out in favour of defined contribution pensions, as part of a policy shift. Since the amount of pension each individual receives is now dependant on how much they save for retirement, the move has virtually abolished the whole pension safety net. To understand more about the different kinds of annuities, read on.

Understand The Difference Between Types Of Annuities In India

What Is An Annuity?

An annuity is a type of financial investment that pays out in a consistent and predictable manner. Long-term insurance contracts in which a person invests money in exchange for a monthly payment from the company. People can understand the mechanics of life insurance plans if they reverse the process. Annuities are similar to life insurance plans in that they need monthly payments and payouts on a regular basis. Annuities protect an individual from the risk of living a long life in the same way that life insurance protects against the danger of dying young.
Annuities can also be thought of as a versatile retirement plan that can be utilised to supplement or generate extra income. The two most common types of annuities are deferred and immediate annuities. An instantaneous annuity pays out right away, whereas a delayed annuity pays out over time.

Kinds Of Annuities

Following are some of the kinds of annuities that a person can choose from -

1. Lump Sum Annuity

The lump-sum annuity is one of the most common types of annuities. As the name says, this annuity plan pays out in one lump payment. A lump-sum annuity is frequently an optional feature that is only available for a short period of time. In most cases, subscribers will not be able to withdraw the whole annuity payment at once. The National Pension System, for example, requires that 40% of the money saved be utilised to purchase an annuity.
Immediate AnnuityAn individual pays a lump-sum premium and receives payment immediately once the lump-sum amount is paid off under an immediate annuity plan.

2. Deferred Annuity

Unlike an instant annuity, a delayed annuity requires the premium to be paid over time, which is referred to as the accumulation phase of the programme. The money are used to purchase an annuity, which is provided to the individual on a monthly basis when the accumulation period has concluded.

3. Fixed Annuity

The annuity payout on a fixed annuity remains constant throughout the contract's term. This type of annuity operates similarly to a fixed monthly pension and is ideal for those who want a consistent income source. The payouts under this annuity plan are fixed, but the potential for financial growth is limited.
Variable AnnuitiesVariable annuities offer a better return potential than fixed annuities, but they also come with a higher risk. For their own "sub-account," an individual, for example, can pick from a menu of mutual funds. Each person's retirement benefits are influenced by the success of their sub-investment accounts.

4. Indexed Annuities

Despite the fact that a market index's performance is determined by a percentage of a person's return, a minimum payout is guaranteed.


An annuity may be beneficial to people who want a predictable and stable income in retirement. Many individuals believe that having a consistent source of income is sufficient, and that they can cover growing expenses and other cost-of-living difficulties with their other assets and investments.

You may also like: Can You Save Tax By Investing In NPS?

Annuity Plans And Their Working Explained

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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