An annuity is a contract, where an income is paid at regular intervals, in return for a lump sum paid up-front.
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What is an annuity plan?
An annuity is a contract, where an income is paid at regular intervals, in return for a lump sum paid up-front. Upon paying the lump sum to the insurance provider, the annuity payouts may commence as early as the next month. The income amount is generally guaranteed for life and can be availed in various combinations and options. Just like Life Insurance insures against the risk of per-mature death, Annuity insures against the risk of living too long.
What does annuity plan cover?
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What are different Types of annuity plans coverage?
Immediate annuity plan:
In an immediate annuity plan, your income starts immediately after you invest in an annuity plan. You can get the annuity as early as one month after investing in the plan. You can consider immediate annuity plans if you are close to retirement and want to get regular income immediately.
Deferred annuity plan:
In a deferred annuity plan, your income starts at a later date chosen by you. You can lock-in higher interest rates at the time of purchasing the annuity so that you get more money for your retirement years. This option is useful, if you have 5-10 years left to retire.
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Benefits of an annuity plan:
- Lifetime Income – Annuity is payable at a constant rate throughout the life of the annuitant. This is particularly helpful when you do not receive regular income. This pension-like payout makes the routine life of the buyer comfortable.
- Lifetime Income with Capital Refund – Annuity is payable at a constant rate throughout the life of the annuitant. On death of the annuitant, 100% of the premium will be refunded to the nominee and the contract will terminate.
- Lifetime Income with Capital Refund in parts – annuity is payable at a constant rate throughout the life of the annuitant.
- Protection of Capital – Annuity plans are designed keeping inflation in mind, rising medical expenditures, etc. This provides a safe investment option and shields against inflation over a period while building a corpus for retirement.
- Annuity Plan Tax Benefits – Most annuity plans come with tax* benefits under sections 80C and 10(10D). Therefore, these investments grow over a period with savings from tax payments and improve the cash in hand when the payouts start.
- Principal Amount – The principal amount invested is protected in an annuity plan. This means that you can choose any mode of investment or payout. The minimum guaranteed return will not go below the principal amount, thus ensuring that the buyers of the insurance annuity plan will at the least get the principal invested back.
Why you should consider purchasing an annuity plan.
Annuity insurance plans are a great way to plan for retirement. They offer reasonable returns, savings against inflation, and tax benefits. An annuity plan should be a part of your investment portfolio.
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