Annuity

An annuity is a financial product offered by life insurance companies that provides a guaranteed stream of periodic income payments — monthly, quarterly, or annually — for a specified period or for the lifetime of the annuitant, in exchange for a lump sum premium paid at the time of purchase. Annuities are the cornerstone of retirement income planning — converting an accumulated corpus into a predictable, inflation-resistant (in some variants) income stream that eliminates the risk of outliving one's savings. In India, IRDAI regulates annuity products offered by life insurers. Common annuity types available in India include: Immediate Annuity (income begins immediately after the lump sum is paid), Deferred Annuity (income begins after a deferral period), Life Annuity (payments for the annuitant's lifetime), Joint Life Annuity (payments continue to spouse after annuitant's death), and Annuity with Return of Purchase Price (beneficiaries receive the principal back on death). Under the National Pension System (NPS) framework, at least 40% of the accumulated corpus must be used to purchase an annuity from a PFRDA-empanelled insurer at retirement — making annuity comprehension essential for NPS subscribers. The primary trade-off of annuities is liquidity — once purchased, an immediate annuity cannot be surrendered, making the purchase decision irreversible and requiring careful consideration of income needs, health status, and alternate financial resources.