Annuity deposit schemes can be described as financial products which are developed by insurance companies or other financial institutions. These schemes are aimed to provide for a regular inflow of income for the retiree throughout their retired life. Now let’s discuss some of the characteristics, advantages as well as disadvantages linked to the annuity deposit schemes.
Key Features of Annuity Deposit Scheme
- Lump-sum Deposit: Those who wish to go for an annuity deposit scheme are expected to invest a single sum to the insurance company or other related financial firm of their choice.
- Regular Income Payments: The annuitant, in return for the lump-sum deposit, gets periodic cash payouts. It can be made at frequent time periods which could be per month, per quarter, bi-annually, or annually.
- Fixed or Variable Returns: Annuity deposit schemes can be of two types – fixed rate and variable rate annuity depending on the selected type of annuity. There, one finds fixed annuities contracts that pay a fixed amount throughout the term of the annuity. While there are variable annuities the payment amount depends on the performance of the securities.
- Term and Payout Options: There is flexibility especially on the method of payout option. These include life annuity where the payments are made until the time of death of the annuitant. On the other hand, the certain period annuity where the payments are made for a certain period regardless of life expectancy.
- Tax Benefits: For the depositor in an annuity deposit scheme, this may mean certain tax exemptions for the annuitant. Hence possibility of tax-free growth of the deposited money as well as tax efficiencies on the income to be withdrawn.
Advantages of Annuity Deposit Scheme
- Lifetime Income Security: Annuity deposit schemes give the retirees an opportunity to have a fixed amount of money they can receive every now and then in their retirement period hence having to be financially set.
- Predictable Cash Flow: Such income payments from the annuity schemes allow the retirees to plan with ease for the periodic and certain amount of money that they shall be receiving.
- Investment Diversification: Hence, an annuity deposit scheme can be tagged as providing an additional stream of income developers can invest in apart from other physical or financial assets.
- Protection Against Market Volatility: The choices that exist in fixed annuities provide stability to people’s income in that they are not affected by the state of the economy.
Aspects for the Annuity Deposit Scheme
- Terms and Conditions: It is very important that people get abreast with the charges, the commission, restrictions on the product and the methods of cashing in the annuity deposit scheme.
- Inflation Risk: In the case of annuities, though their major advantage includes having fixed incomes which acts as an advantage in ensuring a constant income. There are certain consequences of regimes that may pose a risk to the company.
- Longevity Risk: Annuity deposit schemes are designed to deliver income for the lifetime of the annuitant; the latter should consult with his/her physician and adjust the chosen payout option to his/her life expectancy.
- Financial Stability of Provider: Annuity deposit schemes are long term products. Therefore, individuals must consider factors such as the financial dexterity of the insurance company or any other financial firm providing the scheme in as much as it will be able to fulfill on its obligation of paying out agreed amounts.
Therefore, it can be concluded that deposit schemes of the annuity type guarantee retirees income and financial support after their retirement. Knowing the major characteristics, advantages, and issues connected with the annuity schemes empowers individuals to take actions that will provide for their financial needs in their later years to live a comfortable life.
