What is it?
Annuity is a product that makes regular payments to you for life after you invest a lump sum. The insurance company invests your money and pays back the return on the investment.
How do you buy it?
One way is that you buy an annuity from an insurer. This works for retired people looking to invest provident fund and other lump sum savings. You can also buy a pension plan by paying a premium every year. At the end of the term, the insurer buys you an annuity. This works for people away from retirement.
Kinds of annuity
Life annuity with return of purchase price: After your death, your nominee gets the initial amount with which you bought the annuity.
Life annuity without return of purchase price: Your nominee doesn’t get anything. In this case, the periodic payments are higher.
5/10/15-year guaranteed and for life thereafter: If the plan has guaranteed a return for, say, 15 years and you die before that, your spouse will keep getting paid till the guarantee period ends.
Inflation-indexed annuity: The payout increases every year to counter rising prices.
Joint life survivor annuity: It keeps paying till either you or your spouse is alive.
Joint life annuity with return of purchase price: It keeps paying till you or your spouse is alive. After the death of both, the nominee gets the initial investment amount.