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Annuity Plans

An annuity plan is a financial product that provides guaranteed regular income after retirement. It helps you build long-term savings and ensures steady payouts for life or a chosen period. To find the best annuity plan in India, compare plans based on payout type, safety, returns, and your financial goals.

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Tax benefits

Tax Benefits^

Guaranteed Income

Guaranteed1 Income

One plan catering to both Single and Joint Life

One plan catering to both Single and Joint Life

Wide range of Annuity options

Wide range of Annuity options

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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What is an Annuity Plan?

An annuity plan is a financial product that provides regular income to an individual over a set period, usually during retirement. It's a contract between you and an insurance company, where you agree to make a lump-sum payment or a series of payments, and in return, they promise to give you guaranteed payments at regular intervals.

 

You can choose from different types of annuity plans based on your needs. There is immediate annuity plan and deferred annuity plan, each with options for fixed or variable returns. Annuity plans are a useful tool for retirement planning because they provide a steady income to cover your expenses once you stop working. They also help reduce the risk of outliving your savings, as you can receive income for the rest of your life.

 

Though annuities can seem complicated, many people prefer choosing a retirement plan that better suits their needs. In this guide, we’ll explain annuities and help you understand how they can support you during retirement.

Why Should You Invest in an Annuity Plan?

An annuity plan is a retirement-focused financial scheme that gives you a guaranteed income stream for life in return for a lump sum or regular payments. It is meant to support you financially after your regular salary stops.
 

After retirement, while living expenses such as groceries, healthcare, and utility bills continue, your income usually does not. That is when an annuity plan comes in handy; it serves as a replacement for your paycheck, providing steady cash flow to support your lifestyle.
 

One of the greatest fears at the time of retirement is longevity risk, the possibility of outliving your savings. Annuity schemes mitigate this risk by providing lifetime or fixed-term payments, cutting the risk of being dependent on others financially.
 

Also, certain annuity plans provide inflation-indexed returns that enable your income to increase with rising prices over time. By locking into periodic payments, annuity plans act as a secure and stable financial cushion in your golden years.
 

For example, Ravi, a 60-year-old retiree, puts in ₹10 lakhs in an annuity plan. In turn, he starts to receive ₹6,000 per month for life. This comes in handy to help him meet common expenses such as groceries, medicines, and electricity bills, even if he no longer receives a salary.
 

## Please note that these are illustrative figures and the values may change as per the return and market fluctuations.

Annuity Plans Offered by HDFC Life

How Does an Annuity Plan Work in India?

Annuity plans are popular retirement-based financial products in India that convert savings into a steady income stream. These plans follow a sequential life cycle that starts with plan selection and ends with regular payouts. 

For instance, a policyholder investing regularly in a deferred annuity over the long term can build a retirement corpus. It is important to understand that the income generated depends on factors such as the type of annuity chosen, the vesting age, and the selected payout structure. 

Understanding this step-by-step process helps individuals align annuity decisions with their retirement timeline and income needs, ensuring predictable financial support during post-retirement years.

Step 1: Choose the Type of Annuity Plan
 

There are two types of annuity plans to choose from: an immediate annuity plan and a deferred annuity plan. Depending on when you want the payouts to begin, you can choose the type. Such as: 

  • Immediate Annuity Plan

Suppose that if you are nearing retirement, it is best to choose an immediate annuity plan. You will pay a one-time lump sum and start receiving payouts immediately from the following month. 

  • Deferred Annuity Plan

In contrast, if you choose a deferred annuity, it is best to start as early as possible. In a deferred annuity, you can pay a monthly premium and expect larger returns.

Step 2: Pay the Annuity Premium
 

Premium payments in an annuity plan can be of two types: lump sum and staggered premiums. Whereas in a lump sum premium payout, the annuitant has to pay the whole premium amount in one go, in staggered premium payment, the annuitant can do the same in instalments. 

Factoring in the annuitant’s age, annuity type, and premium amount is crucial since the premiums paid by the annuitant directly impact the future payouts. Moreover, ensure that premiums are not skipped or delayed since premium commitment is a foundational step in an annuity plan. 

Step 3: Decide the Vesting Age
 

The vesting age refers to the age at which you want your pension or payouts from an annuity to start. In India, the minimum vesting age is usually 30 years, but it can go up to 80 or 85 years. Investing in a deferred annuity enables your premiums to accumulate before the vesting age, which leads to a significant retirement corpus. 

Step 4: Select Annuity Payout Options
 

This is a critical step where you decide the frequency of your payouts. These can be on a monthly, quarterly and annual basis. You can choose the payout duration for a fixed term or lifelong. It is important to choose the payout frequency before the actual payout commences. 

Please note: Depending on your payout structure, the cash flow consistency differs. 

Step 5: Start Receiving Regular Income
 

When the vesting age arrives, the accumulation phase of the annuity plan ends, and the distribution phase begins. Based on the payout you chose earlier, the payout frequency and structure follow. 

Since annuity payouts are a predictable retirement income source, they provide peace of mind to the annuitants in their golden years. 

Step 6: Additional Features and Options
 

Annuity plans may offer optional features such as joint-life coverage, ensuring continued income for a spouse after the annuitant’s death. Some plans also provide a return of purchase price to nominees, supporting beneficiary protection.

Features of Annuity Plans

Let’s better understand the features of annuity plans.

Feature

Details / Expectations

Annuity Options

  • Offers multiple payout structures, such as single life, joint life, return of purchase price, and joint life with additional benefits.

  • Users can customise income continuity based on their personal and family needs.

Regular Income Stream

  • A predictable and guaranteed income stream for life enables retirees to meet various life expenses without market dependency.

Pension Payout Options

  • Payout frequencies such as monthly, quarterly, semi-annual or annual are available. 

  • Retirees can align income with expense cycles.

Flexibility in Purchase Price

  • Investors have the flexibility to purchase an annuity plan either via lump sum or staggered contributions. 

  • This ensures financial readiness and a robust retirement planning strategy.

Guaranteed1 Income

  • Guaranteed payouts of an annuity plan for a defined period or lifetime reduce longevity and income uncertainty post-retirement.

Nomination Facility

  • Annuity plans allow nomination, so the benefits can be easily transferred to the nominee or legal heirs.

Transparency and Disclosures

  • Transparency of annuities helps annuitants in making informed decisions. 

  • There are no hidden costs involved.

Tax Benefits^

  • Annuity payouts are tax-deferred until the payouts start post-retirement.

  • This makes retirement-stage tax planning convenient.

Taxation on Income Received

  • According to prevailing laws, annuity income is taxable as per the applicable income tax slab under the chosen old or new tax regime.

Benefits of Annuity Plans

When you purchase an annuity plan, you enjoy several benefits.

1
1

Lifetime Income

As India's life expectancy increases, people are concerned about outliving their savings. Annuities offer a lifetime income stream, alleviating these worries. These plans can be structured to provide regular payouts for a specific period or the remainder of your life.

...Read More

2
2

Guaranteed and Secure

Investments in stocks and bonds depend on market fluctuations, making it difficult to predict how much you will get. Annuities provide a guaranteed rate of return and a guaranteed stream of income. These plans offer peace of mind for retirees concerned about market volatility and potential investment losses.

...Read More

3
3

Additional Benefits

Annuities also offer additional features and benefits. Firstly, they provide tax-deferred growth. So, individuals can invest and build a corpus without paying taxes until they start getting payouts. Tax-deferred growth increases the value of the investment over time, making it beneficial for individuals who want to build a significant corpus for their retired life. These plans also offer a joint-life option, which means you can secure your spouse's retired life through the annuity, ensuring they maintain their financial independence, regardless of what happens to you.

...Read More

4
4

Customizable Payouts

Annuity plans are unique in their ways, and there is no "one size fits all" approach. So, you can tailor your income stream that matches your specific lifestyle requirements on a monthly, quarterly, semi-annually or annual basis. 

Furthermore, the joint annuity option allows you to ensure that, irrespective of life’s uncertainties, your spouse continues to get the annuity payouts. And increasing annuity enables your payouts to increase up to a fixed percentage, for example, 3% to 5% per annum, ensuring your purchasing power is not eroded by inflation. 

Besides this, there are additional rider options, like return of premium, which allows you to get back the premium amount in case of an emergency.

...Read More

5
5

Financial Security

Annuity plans are designed to address longevity risk by providing a stable and predictable income during retirement years. By ensuring regular payouts for a defined period or for life, they help individuals maintain financial independence after active employment ends. A well-chosen annuity structure can support long-term income planning, which is why many retirees evaluate options carefully before selecting what they consider the best annuity plan in India for their retirement needs.

...Read More

What are the Types of Annuity Plans?


 Classification


 Type of Annuity Plan


 Details / Expectations

Based on Payout Initiation Time

Immediate Annuity

  • Regular payouts are available immediately after the purchase. 

  • Best for individuals seeking instant retirement income at prevailing annuity rates.
 

Deferred Annuity

  • During the accumulation phase, the investments grow over time. 

  • Since payouts begin at a future date, typically at retirement, it allows corpus growth before income starts.

Based on Payout Duration

Lifetime Annuity

  • Provides a guaranteed income stream for the entire lifetime of the annuitant.

  • Ensures long-term financial security without longevity risk.
 

Annuity Certain

  • Pays income for a fixed, pre-determined period irrespective of the annuitant’s life span. 

  • Most suitable for those seeking income certainty for a specific duration.

Based on Payout Type

Variable Annuity

  • Income payouts depend on market performance. 

  • Annuitants’ risk tolerance

  • Allows flexibility to switch funds based on risk appetite goals and market conditions.
 

Fixed Period Annuity

  • Offers income payments for a defined tenure.

  •  In case of the annuitant’s demise, payouts may continue to the nominee or legal heirs.
 

Increasing Annuity

  • Payouts increase gradually either at a fixed rate or linked to inflation. 

  • Helps offset the impact of rising living expenses over time.
 

Annuity with Return of Purchase Price

  • Guarantees the return of the original purchase amount to nominees or legal heirs upon the annuitant’s death.

  • Ensures capital protection.

Based on Beneficiaries

Single Life Annuity

  • Provides income during the lifetime of the annuitant. 

  • Options may include a life annuity or a life annuity with return of purchase price.
 

Joint Life Annuity

  • Covers two individuals, usually spouses. 

  • Income continues as long as either annuitant is alive, ensuring financial security for the surviving partner.

What Returns Can You Expect from Annuity Plans?

Both deferred and annuity plans allow you to select between variable and fixed annuities.

  1. Variable Annuity

    2. Variable annuities provide the potential for investment growth while ensuring a guaranteed income stream in retirement. With a variable annuity, an individual typically makes a lump-sum payment to an insurance company, which invests the funds in various investment options, such as mutual funds or stocks. The value of the investment account within the variable annuity fluctuates based on the performance of the underlying investments. Some plans allow individuals to choose how their funds get allocated among various investment options. Some variable annuities also offer a fixed account option, which provides a guaranteed rate of return not tied to the performance of the underlying investments.

  2. Fixed Annuity

    3. A fixed annuity provides a guaranteed income stream to individuals after they retire. With a fixed annuity, an individual typically makes a lump-sum payment to an insurance company, which then guarantees to pay a fixed rate of return on their investment, regardless of market conditions. The insurance company invests the funds from the fixed annuity in low-risk assets, such as bonds or other fixed-income investments. The individual is guaranteed to receive a fixed rate of return on their investment for a period ranging from a few years to several decades. At the end of the accumulation phase, the individual receives regular income payments from the fixed annuity.

What Are the Eligibility Criteria for Buying Annuity Plans?

To avail of an best annuity plans, certain eligibility criteria must be met. These criteria may vary depending on the type of annuity plan and the insurance company. Here are some common factors considered:

1
1

Entry Age:

This type of policy is generally available to individuals between the ages of 20 and 60 years. 

...Read More

2
2

Policy Term:

You can choose a policy term that fits your needs, ranging from a minimum of 5 years to a maximum of 35 years.

...Read More

3
3

Sum Assured:

The sum assured is the guaranteed payout amount you select when purchasing the policy. It offers flexibility, with a minimum threshold of Rs. 1 lakh and no upper limit. This allows you to tailor the coverage to your financial goals.

...Read More

4
4

Monthly Pension Amount:

The policy offers a monthly pension benefit upon maturity. You can choose a monthly payout amount that aligns with your retirement income needs.

...Read More

Documents Required to Buy Annuity Plans in India

Here are the basic documents required to buy an annuity plan in India:

Category

Accepted Documents

ID Proof

  • Aadhaar

  • PAN

  • Passport

  • Driving License

Address Proof

  • Aadhaar

  • Passport

  • Utility Bill  (Electricity/Water)

  • Bank Statement

  • Driving License

Age Proof

  • Passport

  • Birth Certificate

  • 10th Marksheet

  • Aadhaar

Income Proof

  • Salary Slip

  • Bank Statement

  • ITR  (Income Tax Return)

  • CA Certificate

Other Documents

  • PAN Card (or Form 60 if PAN is unavailable)

  • Cancelled cheque and/or Bank Passbook copy

  • Recent passport-size photographs


Special Cases

Here are the documents required to get an annuity plan under special circumstances: 

Scenario

Requirement

Why it's needed

NPS Subscribers

NPS PRAN Card

To transfer funds from the NPS corpus to the annuity

Medical Annuities

Medical Reports

Needed for health-linked products (Underwriting)

Corporate Plans

Employment Certificates

To verify eligibility under specific employer schemes


NOTE: The list of documents mentioned above is indicative and represents the basic requirements for purchasing an annuity plan. Please note that the actual documentation required may vary based on the specific product chosen, the sum assured, and the customer's profile (such as NRI, Self-Employed, or Salaried). HDFC Life reserves the right to request additional documents, declarations, or medical reports as per its internal underwriting policy and prevailing IRDAI regulations.

Factors to Consider Before Investing in Best Annuity Plans in India

Annuity plans provide financial security once you retire. Before purchasing one, you must consider some crucial factors.

01

Category of Annuity

You can get various annuity plans in India, such as immediate or deferred, and fixed or variable annuities. Each one offers unique features and benefits. You must consider your retirement goals and financial obligations and select a plan to help you meet them.

02

Financial Commitment

Annuity plans typically require a significant financial commitment, such as a single lump-sum payment or a series of regular premium payments. You must carefully consider your financial situation and budget to ensure you can fulfil the financial commitment required for the annuity plan.

03

Age and Health Requirements

Annuity plans may have age and health requirements, such as minimum and maximum age limits or medical underwriting requirements. Check each insurance company's criteria to determine if you are eligible for the annuity plan.

04

Options for Payout

Annuity plans offer different options for payout, including how long the payments will last, such as for a certain number of years or the rest of your life. Evaluate your financial goals and needs and determine the best payout option accordingly.

05

Tax Impacts

Annuity plans allow tax-deferred growth. However, once you start receiving the payments, you will have to pay taxes on the income based on your salary bracket. You must understand these tax implications to determine the cost and benefit of the annuity plan.

FAQs on Annuity Plan

1

How do I know if an annuity is suitable for me?

If you desire steady, long-term income, have already set up an emergency fund, and want to lower your market risk throughout retirement, an annuity can be a good choice for you. Before making a choice, consider your age, financial objectives, risk tolerance, and liquidity requirements. You can assess whether the product's fees and benefits fit into your entire retirement plan by speaking with a financial counselor.

2

Is it ever “too late” to buy an annuity?

Purchasing an annuity is rarely "too late," but timing is crucial. While older customers can receive larger payments, they would also have fewer options or pay more in fees. To determine whether an annuity still offers value, consider your current assets, income requirements, and health. Whether it makes financial sense to buy at this point in your life might be determined by a professional evaluation.

3

Are annuities good for senior citizens?

Yes. Annuities are well-matched for senior citizens as they endow an assured and lifelong income without any market risks. Retirees benefit from predictable payouts that assist in covering living expenditures, healthcare and emergencies.

Unlike savings accounts or mutual funds, annuities assure a steady income irrespective of economic conditions. They even reduce the stress of managing investments at an older age, offering mental peace along with financial security.

4

What happens to my annuity if I die?

What happens depends on the annuity you select. In a life-only annuity, payments stop upon the death of the policyholder. In a return of purchase price annuity, the invested amount (i.e., purchase price) is given back to the nominee. 

A few plans even permit continued payouts to the spouse or beneficiary. It is essential to select an option that is in line with your family’s financial security needs.

5

Can I Withdraw Money from My Annuity Plan Before Maturity?

Usually, annuities do not permit premature withdrawal as they are customised to provide lifelong income. However, a few plans might permit partial withdrawal under exceptional circumstances, such as critical illness or financial hardship. 

In most scenarios, once you invest, the money is locked, and you just get payouts as per the schedule. If flexibility is a priority, then it is better to check out the policy terms or consider alternatives like Unit-Linked Insurance Plans (ULIPs) or mutual funds.

6

How much will Rs. 50000 annuity pay monthly?

The month-on-month payout depends on the type of plan, tenure and interest rate. For example, a ₹50,000**** annual premium in an immediate annuity could yield nearly ₹4,000–₹5,000**** every month, based on the insurer and policy terms.

7

Who should opt for annuity plans?

Annuity plans match individuals looking for assured lifelong income post-retirement, particularly retirees, self-employed professionals or anyone without any fixed pension.

8

Are annuities suitable for senior citizens?

Yes. Annuities are an excellent financial choice for senior citizens, as they endow stable and risk-free income without stressing about market ups and downs.

9

How do I choose the right annuity plan for my needs?

Figure out your income goals, retirement horizon and risk appetite level. Then, strike a comparative analysis among distinct annuity types, i.e., immediate, deferred, fixed or variable, to find the one that matches your financial requirements and comfort level.

10

How is an annuity better than an FD?

An annuity focuses on providing a regular income stream, often for life, which helps manage longevity risk after retirement. While fixed deposits offer returns for a limited tenure, annuities are structured for long-term income continuity. This makes annuities more suitable for retirement planning, as payouts can continue regardless of market conditions and are aligned with post-retirement financial needs.

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Disclaimers

1. The word “Guaranteed” and “Guarantee” mean that annuity payout is fixed once the policy has been purchased.

4. In the case of Joint Life annuities the payout continues till either of the lives chosen in the policy is alive.

^ As per Income Tax Act, 1961. Tax benefits are subject to changes in tax laws.

This material has been prepared for information purposes only and should not be relied for financial advice. You should consult your own financial advisor for any financial advice.

**** These Figures are for illustrative purpose. Actual figures might differ.

#@ 5%–7% annual returns, is a generalization, not a guarantee. The return rate on an annuity depends on many factors, including the type of annuity, current market interest rates, and the specifics of your policy

 

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