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Annuity is an insurance contract aimed at providing a steady income during after retirement. Note that these policies do not come with a life insurance cover. If annuity (also called pension) starts immediately after the payment of a single premium, it is known as called an ‘immediate annuity policy’. But, If the premium payment is made over a period of time (when you build the corpus) and the annuity starts from the end of the premium-paying term, it is known as ‘deferred annuity’.
Insurance companies give the option of receiving the annuity in a monthly, quarterly or annual basis for a fixed period or till the end of life. Though the amount invested in an annuity policy is not taxed, the annuity payment (pension) one receives is taxable at the slab rate. When going for an annuity plan, go for an insurance company with a longstanding solid track record, as it is a very long-term product. Given the guaranteed pension these plans offer, the rate of return (the annuity rate) is generally low.
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