Immediate Annuity vs Deferred Annuity: Which Should You Opt for?

25-August-2021 |

People look for retirement as the most important phase in their life to seek an unhurried lifestyle and happiness, after a tiring employment phase! However, without adequate financial planning, even your retirement can suffer to a great extent. For this reason, financial institutions and especially insurers, provide varied financial products to satisfy the needs of policyholders.

Annuity insurance has become a preferred option of many people in recent times. The immediate annuity and the deferred annuity options differ based on the payout terms and conditions. Let us distinguish between both and understand which can be a suitable option for you.

 

What Are Annuity Plans?

Annuity plans are retirement solutions provided by financial institutions. It will help you manage the retirement expenses with a defined financial plan. Annuity insurance plans offered by insurance providers provide life cover and annuity-based savings solutions for your retirement.

Based on the type of investment and the duration of the policy term, there are various annuity plans available. You can either pay a lump sum to purchase an annuity or regularly invest in an annuity and let it pay for you after your retirement. There are two basic types of annuity plans, the immediate annuity plan and the deferred annuity plan. Here are the differences between the two.

 

Immediate Annuity vs Deferred Annuity

Certain features distinguish the two basic types of annuity plans. Let us understand them in detail.



Immediate Annuity

Deferred Annuity

In an immediate annuity plan, you will start receiving the annuity immediately after you invest the amount. It can be a monthly or annual annuity payout. In addition, the immediate annuity insurance provides a death benefit as part of the plan to your nominee in case of your unexpected death. It is based on the terms and conditions of the insurer. For example, the death benefit can be a refund of the purchase price of the annuity plan.

In a deferred annuity plan, you can invest a lump sum amount or pay a monthly or annual premium amount for a fixed duration and receive the annuity payout after a particular term. In addition, the deferred annuity life insurance also provides a death benefit on your sudden demise to your nominee during the policy term as defined by the insurer.

In an immediate annuity option, the payout starts immediately after you have invested in the plan. Tata AIA immediate annuity plan provides customizable features to modify the annuity plan options based on your needs.

You can start receiving the payout only after making all the premium amount payments in a deferred annuity option and after the chosen deferred term.

If you are close to retirement or already retired, you can park your retirement corpus earned during your employment phase to purchase an immediate annuity plan. It will provide the option to receive immediate annuities to kick off your retirement phase.

If you have decided about your retirement plan at a younger age, the ideal option is deferred annuity. It will help you accumulate a corpus in the long term and start receiving the annuity later after your retirement.

The immediate annuity plan can be slightly expensive because the annuity starts immediately. However, you can use the immediate annuity plan calculator to understand how much can be the benefit based on your affordability.

The deferred annuity plan can be reasonable considering the affordability factor because the cost is spread across a longer term.

Insurers provide fewer additional benefits here because the annuity starts immediately.

As it is a long term investment, insurers might provide additional guaranteed1 returns as a death benefit or the annuity payouts based on their policy terms.


For both plans, you can choose the income period if it is the regular payout option. It can be for a set period or throughout your life.

 

Which annuity plan should you opt for?

If you are a person who just started your career, you have the option to stay invested for a long time by contributing a smaller amount regularly to a retirement corpus. You will also have the privilege to invest more because the commitments might be less. On the other hand, it might also be possible that you are overburdened with your family’s financial commitments and cannot allocate a savings fund at any stage in your life. With either of these cases, a deferred annuity plan will be the best option. Firstly, it will let you invest more in the longer term and secondly, the cost is spread over the policy term, making it extremely cost-effective.

If you have been burdened with many family commitments throughout your life and couldn’t save for your retirement, then the immediate annuity plan can be the ideal option. You can directly invest the retirement corpus earned with your employer's assistance and get the best returns regularly. In addition, you can customize the plan to receive regular payouts for a specific period or the whole of your life. 

 

Conclusion

Retirement can be the most interesting and relaxing part of your life if you make the necessary planning based on your income and requirements. Life annuity plans make the option to invest easy and flexible. Immediate annuity and deferred annuity are the two basic types of annuity plans. Decide the right option based on your preferences, age and financial commitment. However, make it a point to invest and, most importantly, stay invested if you opt for the deferred annuity plan!



L&C/Advt/2021/Sep/1659

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Disclaimer
  • 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 the 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 shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry