One of the most important parts of an individual's financial planning is savings. It is crucial to save for the rainy days. Savings can be done to lead a relaxed life even after retirement, to receive tax benefits and to make considerable investments that will grow over time. However, not all saving tools can fulfill these three requirements. Annuities is one such financial investment that can help you create a nest egg for retirement and also enable you to make smart investment moves as well as get tax exemptions. It is essentially an agreement between the buyer and an insurance firm, whereby the former gets assured capital gains in return of the payment of premiums.
Importance of Annuities
Annuities are an excellent investment option in which the buyer can invest money all at once or through installments paid over a course of time. In return of this investment, the buyer gets a specific sum of money either for a fixed number of years or for life.
The significance of annuities lies in the fact that it allows an individual to create an investment portfolio that can fulfill their short term or long term financial requirements and demands. They cater to all kinds of investors. The presence of diverse kinds of annuities allows individuals to choose the one that helps them get the best returns as per their financial needs. An individual can invest in more than one form of annuity insurance and avail benefits from the different features that it provides.
Annuities differ from all the types of insurance in the way that it does not provide life insurance cover but offers an assured income either for a fixed number of years or for life. It is an excellent tax-deferred investment option in which the money invested in annuities remains free from tax deductions until the individual decides to withdraw the money or starts receiving income payments.
Types of Annuities
One can find various forms of annuities in the market. For each type of investor, there is an annuity. Individuals should invest in an annuity if the plan provides investors all that they need from it. Some of the annuities are:
- Fixed annuities-This investment option provides the buyer a fixed rate of interest for a specified amount of time, after the expiry of which the interest rate may be revised. It is an excellent investment product for those who are unwilling to take any risks with their investment
- Immediate annuities-By buying this annuity plan, the investor gets a regular source of income as soon as the investment is made.
- Deferred annuities-This form of annuity allows the investor to defer income payments from the annuity. By investing in deferred annuities, an individual can get financial security for their old age and also avail associated tax benefits.
- Lifetime annuities-By investing in lifetime annuities, the investor will get a regular source of income. The investor can either make a one-time payment or pay premiums over a certain period of time.
Getting an annuity will ensure a buyer complete financial security for the retired years.