15 AUG 2016
How annuity can offer steady income?
You want an air conditioner. You go online to search for some options. You see an offer of a brand new good quality split unit at a dirt cheap price, with the catch that there are no warranties or guarantees. Would you buy it? Chances are that you won't, isn't it? Why? Because this product is not covered by any guarantees. The same applies to life. Wouldn't you want a retirement plan that gives you a guarantee? If yes, then annuity is the right product for yourself.
What is meant by an annuity?
Let's understand this by an example. Jay is a college student who gets regular pocket money from his parents. One day, his parents decide to go to their village for some work relating to their ancestral property. They give Jay Rs.10000/- over and above his pocket money for a month as emergency funds to take care of himself when they are away. Jay wants to safeguard this amount as neither he nor his parents are aware as to when they will be back. He needs to save as much as possible so that he does not face any inconvenience when his parents are not around. He gives this amount to his friend Kay, in return for a promise that when Jay wants money, Kay will pay him this amount with interest on a monthly basis till his parents are not back. After a month, Jay exhausts his pocket money and since his parents are still not back, Jay goes to Kay and asks him to fulfil his promise. Kay starts making the monthly payments as decided. Hence, Jay now is receiving a monthly pocket money even though his regular source is absent.
This is what annuities do. They give you a regular, steady flow of income when your regular source of income has dried up.
Benefits of annuity
An annuity is a kind of pension product that gives you a regular cash flow till the time that you are alive. It is a plan in which regular income is paid to you in return for a lump sum payment made by you at the time of initiation of the policy. The benefits of an annuity plan is that you get a regular income long after your working years are over, till a certain period or for life. After your death, depending on the policy, your spouse is returned the entire amount of the premium paid at the beginning and the policy terminates. This gives you immunity against inflation as whatever happens, you are going to get a fixed amount. Things like market volatility and adverse movement in interest rates will not affect your steady income flow.
Antidote to what-ifs
What if you outlive your retirement resources? What if you fall seriously ill and have to dip into your savings for the medical expenses? What if a financial emergency occurs which squeezes you dry of your savings? An annuity will ensure that you continue receiving a steady flow of cash every month till you are alive. This is an antidote to all the what-ifs. This is what makes annuity products valuable and priceless.
Every person nearing his retirement, inevitably wants a guarantee of steady income once he is done with his working years. Opt for a simple, transparent and easy to comprehend annuity product to create a guaranteed and lifelong, regular income stream. Annuity, as a product, is exactly meant to do that.
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