An annuity insurance plan is a policy provided by insurance companies that provide you a steady income stream by way of periodic payments to you after accepting a lumpsum amount as premium or purchase price of the plan.
Initially, you make a lumpsum payment in the present in order to receive guaranteed payments in the future. Therefore, an annuity insurance plan which is essentially a pension plan might be an interesting retirement strategy especially for those who do not have any such plan.
The duration of time when the money which comes from the individual is being collected is called the accumulation phase while the annuitization phase begins when the payouts to the individual begin, which is usually after retirement. The upside of annuity insurance plan is that the amount of money which you invest in the insurance policy builds up tax-deferred. The money that you invest in the annuity insurance plan is not subjected to tax but the withdrawal of your earnings is taxed at the typical income tax percentage. And a tax penalty is enforced if and when you make any withdrawals before a definite, stated age.
Advantages of Annuity Insurance Plan
There are two important factors that attract investors to look at annuity insurance plan as a vital retirement savings tool.
The types of annuity that exist in the market are found to be the only financial insurance investments that naturally enjoy tax-deferred status, which means that the amount the policyholder invests in the annuity grows tax-free until the earnings phase begins.
Responsible individuals that invest in any types of annuity insurance can live a stress-free and risk-free life as they know for sure that they are entitled to receive payments until they die, even when they manage to completely drain out the value of the annuity insurance plan ahead of time.
Also Read: What are annuity insurance plans?
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