How to Choose the Perfect Annuity Insurance?

3-June-2021 |

Financial institutions provide a diverse range of offerings that aim to assist in creating a well-defined financial road map. These incorporate the diversified needs of each individual to provide a suitable solution to secure their financial future. Amongst these offerings is an annuity plan that is designed to enable a comfortable living in the sunset years of your life. If a regular and guaranteed# income in the twilight years is what you need, an insurance annuity plan is just the solution you might be searching for. However, before speaking about the factors that need to be analyzed to choose the perfect annuity scheme, let us first understand what exactly an insurance annuity plan is.   


What is an Annuity Plan?

An annuity plan is an investment product that promises the policyholder a future pay-out in regular instalments in exchange for a predetermined amount paid in the accumulation phase. The premiums in exchange for an insurance annuity plan can either be paid in a lump sum or regular instalments based on the preferences of the policyholder. The money that is given to the insurance company as premiums are invested, and the returns generated are given at the time of pay-out. As for annuity plan taxation*, under Section 80C of the Indian Income Tax Act, while the contributions made are exempted up to ₹1.5 lakhs, the withdrawals are subject to taxation.

For a better understanding, consider an annuity pension plan as the reverse of a term insurance plan. In term insurance, the policyholder pays premiums in exchange for a death benefit to secure the financial dependents from dying too young. Contrarily, an annuity plan secures the policyholder from living too long without an adequate income to support themselves in the later phase of life.


Factors to consider while choosing a suitable Annuity Plan:

Whenever you are selecting a financial product, it is important to analyse it from every facet to determine whether it suits your financial requirements. An annuity scheme is a lucrative investment option that provides financial freedom in the post-retirement phase. Here are some important criteria that you must consider while selecting the best annuity scheme:


  • Secure investments:

As it helps you build a corpus for future use, an annuity pension plan is a long-term investment ranging over at least two to three decades. They come with the promise of assured and regular pay-outs for life. As the expenses of living don’t stop with retirement, you can ensure that you continue to live comfortably through the annuity pension plan. It acts as an income replacement for post-retirement. Considering this, choosing an annuity plan that promises superior safety is of paramount importance to ensure that the returns are seamless and hassle-free.


  • Rate of return:

A common factor that is often overlooked, especially by novice investors, is not factoring in the rate of inflation while determining the pay-out amount. However, when you make any investment, the returns are an essential component. Although it does require a certain level of foresight, calculating future needs is not as complicated a matter as it initially appears. The annuity rates need to be analysed and calculated by considering your lifestyle, financial liabilities, and the rate of inflation. Usually, the rate of inflation is calculated at 7% to 7.5%, and it is important to consider this in the annuity rates. Annuity rates are the predetermined percentage by which your annuity grows each year. As annuity products are long-term plans, several insurance providers are conservative when it comes to the rate of return.

  • Liquidity:

Although the very characteristic of an annuity plan is not very liquid in nature, it is always recommended to look at the withdrawal conditions if emergency funds may be required. While preferably it is not advised to make any withdrawal until due, financial contingencies can force this decision. For such occasions, you should check whether an insurance provider permits partial withdrawal of funds.


  • The performance history of the insurance provider:

When it comes to matters concerning money, it is better to be safe than sorry. When buying annuity plans, you need to conduct relevant research to judge the financial strength and the former pay-out records of the provider. The authenticity can be determined by visiting the websites of recognized insurance providers. To avoid unpleasant surprises in the vulnerable stage of life, it is important to dedicate some time to conduct adequate research before investing.


  • Choosing the right type:

Securing your financial future comes with the requirement to choose the right type of annuity plan. When you analyse your needs and lifestyle, you will have a fair idea of how you would like to benefit from your investments. Essentially, annuity plans are of four types which are classified based on two primary factors: the time you would like to start receiving the pay-out and the choice of capital investment. Here are the types of annuities that you can choose from:


  • Immediate Fixed Annuity: Here, you can immediately receive the pay-out in a lump sum. However, in this plan, your interest rates are fixed.

  • Immediate Variable Annuity: Under this plan, you get an immediate pay-out, but your annuity rates are variable as they are invested in markets.

  • Deferred Fixed Annuity: This annuity enables receiving regular monthly payments instead of a lump sum amount through a fixed rate of interest.

  • Deferred Variable Annuity: The pay-out under this annuity is provided in monthly instalments, and the annuity rates are variable as the amount is invested in the market.  


When you buy an annuity plan with Tata AIA insurance, you get a deferred as well as an immediate life annuity option. You also have a choice to select different annuity pay-out options like monthly, quarterly, half-yearly, or annual pay-outs. During an emergency, you can also avail of a loan against the policy. To know all the features and benefits associated with the plan, you can visit their official website.


Several providers give annuity plans; however, before buying annuity plans, you must carefully analyse your needs as well as the authenticity of the provider for a good plan. In addition to this, a suitable pay-out option should be chosen.


As annuity plans are meant to secure your financial future, you must also observe your risk appetite before choosing the right plan. You can also consider whether you would like to extend the annuity coverage to your spouse through joint annuity plans so that they continue to receive the payment even in your absence.



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  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this blog. Please consult your own tax consultant to know the tax benefits available to you.

  • #Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life Insurance shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.