Deferred Annuity

Definition:

A deferred annuity is a life insurance policy type that generates income for life after retirement.

Description:

Insurance companies provide the buyers either regular or lump sum payment at some date in the future. The policyholders purchase the deferred annuity to support their life and income after retirement. The annuity plan provides financial security to the life insured.

Deferred annuities come in several different types like indexed, fixed, and variable annuities which determine the rate of return.

Indexed deferred annuity: It is the annuity plan that provides returns based on the market performance of a particular market index.

Variable deferred annuity: The return under this annuity type is based on the performance of mutual funds or accounts chosen by the policyholder.

Fixed annuity: As the name suggests, it is the policy that gives a guaranteed rate of return on the money invested in the account.

The period under which the annuity owner pays the premium is the accumulation phase.

Example:

Pramod bought a fixed deferred annuity with a single premium payment of Rs.1 lakhs. After a few years when Pramod will retire, the policy will pay him the guaranteed returns.

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