What Is an Annuity Plan?
Written by Mariyam Sara
3 min read | Updated on December 02, 2025, 15:16 IST
The biggest worry for working professionals is saving up for retirement. Though most employers offer employee provident fund and pension plans, you can invest in annuity plans to ensure a worry-free retirement.
In this blog, you will learn everything you need to know about annuity plans to make an informed investment decision for your future.
What Is an Annuity Plan?
An annuity is a contract you purchase from a financial institution that pays you regular or lump sum income immediately or after a fixed term. You can invest in an annuity plan by paying a fixed amount monthly or a one-time lump sum amount.
Features of an Annuity Plan
The following are the features of annuity plans that attract investors looking to secure their future financially.
Low-risk Investment
Annuity plans, such as a fixed annuity plan, offer a steady income irrespective of the market conditions, making it a low-risk investment option. The corpus you will receive at the end of the plan is pre-determined at the time of purchase, eliminating anxiety related to return on investment.
Financial Security
Annuity plans are designed for people wanting to secure their financial future by making fixed payments regularly. Annuity plans help you stay financially independent even when retired.
Flexibility
Certain annuity investments are highly flexible, allowing you to choose to pay your premiums monthly, quarterly, half-yearly, or yearly. You can choose how you want to withdraw the investment at the maturity of the plan.
How Annuity Plans Work in India?
With annuity plans, securing a financially independent retirement has become possible. Here’s how annuity plans work and how you can start investing in an annuity plan.
Step 1
Pick the type of Annuity plan you wish to invest in and purchase it from a broker, insurance provider, or bank.
Step 2
Choose to pay your premiums regularly at fixed intervals or in a lump sum and start your annuity plan. The insurance company will invest this amount, allowing you to earn interest on your investment.
Step 3
You can decide the time you want to start receiving your income from the annuity corpus. This corpus is the sum of your original investment amount and the accrued interest on it. Any fees applicable will be deducted from your total investment value.
Types of Annuity Plans
Since it is crucial to pick an annuity plan that aligns with your financial goals, know the different types of annuity plans in India and how they work.
Deferred Annuity
In Deferred annuity plans, there is a waiting period between the time you start investing and the time you can receive your income. Your payments are accumulated over a long period and earn interest, increasing your investment value.
Deferred annuity plans are of two types:
Fixed Annuity
In a fixed annuity, you get a fixed amount of payment, regardless of market conditions, offering income stability.
Variable Annuity
In a variable annuity, your income is tied to market performance. There are two phases in a Variable annuity: the Accumulation phase and the Vesting Phase.
In the accumulation phase, you make regular payments and in the investing phase, you receive income based on market performance.
Immediate Annuity
In an immediate annuity, you pay a lump sum premium instead of multiple payments and start receiving a fixed income monthly almost immediately. It is often used by people nearing their retirement age who wish to earn income right away.
Lump-sum Annuity
In a lump-sum annuity, you pay multiple premiums and withdraw a lump sum amount at the maturity of your annuity plan.
Benefits of Investing in an Annuity Plan
Other than being low-risk investments, there are benefits to investing in an Annuity Plan.
Guaranteed Returns
Annuity plans are low-risk investments and offer guaranteed returns to their investors, making them suitable for risk-averse individuals planning for retirement.
Regular Income
Annuity plans offer a steady stream of income after retirement for the rest of your life. This ensures you are financially stable and independent and have a worry-free retirement.
Diversified Portfolio
Having a diversified portfolio lowers your risk exposure by incorporating low-risk investments that aren’t affected by market conditions. A Fixed Annuity plan is a low-risk investment whose returns are not linked to market performance.
Reduce Reliance on Credit
Annuity plans can reduce your dependence on credit cards and loans and cover your daily expenses and major financial goals.
Financial Security For a Loved One
Annuity plans offer life coverage to financially support your loved ones if you die within the policy term.
Tax Benefits
Annuity plans qualify for tax deduction under Section 80CCC of the Income Tax Act 1961, when lump sum payments for annuity plans are eligible for tax deduction of up to ₹1.5 Lakh in a year.
Annuity plans are a great low-risk investment that provides guaranteed returns for your retirement. Pick an annuity plan that aligns with your financial goals and risk appetite so you can have a stress-free retirement.
About Author
Mariyam Sara
Sub-Editor
holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.
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