What is Annuity?

An annuity is an investment that you make, either in a single lump sum or through installments paid over a certain number of years, in return for which you receive back a specific sum every year, every half-year or every month, either for life or for a fixed number of years.

After the death of the annuitant or after the fixed annuity period expires for annuity payments, the invested annuity fund is refunded, perhaps along with a small addition, calculated at that time.

Annuities differ from all the other forms of life insurance discussed so far in one fundamental way - an annuity does not provide any life insurance cover but, instead, offers a guaranteed income either for life or a certain period.

Typically annuities are bought to generate income during one’s retired life, which is why they are also called pension plans. Annuity premiums and payments are fixed with reference to the duration of human life. Annuities are an investment, which can offer an income you cannot outlive and provide a solution to one of the biggest financial insecurities of old age; namely, of outliving one’s income. Annuity income is assured throughout life, but ceases on the death of the annuitant.

An individual, who after retiring from service has received a large sum from his Provident Funds, should invest the proceeds in a pension plan or annuity fund available in the market since it is the most satisfactory method of providing a safe and secured income for the rest of his life.