An annuity is a financial agreement entered into between a policyholder & an insurance company. In life insurance, it refers to an amount invested in regular payments or in a lump sum, & in return, the insurance provider offers a regular flow of income. This payment will either start immediately (immediate annuity) or after a certain period (deferred annuity). This guaranteed pension amount will help you achieve your life objectives & provide financial security for your family members. Once you have understood the Annuity Meaning, it is equally important to understand the differences between a Single & a Joint Annuity Plan while choosing an appropriate plan.
What is a Single Annuity Plan?
It is an insurance-based investment plan which offers a steady flow of income to an individual throughout their lifetime. A pre-fixed amount will be received throughout life until the death of the annuitant after the annuity plan is bought. This financial security is received until death, & no benefits are received by the spouse.
What is a Joint Annuity Plan?
This plan ensures a smooth flow of income for two individuals, especially spouses, throughout life. Under this plan, an insurance company pays an annuitant on a monthly, quarterly, or yearly basis. The insurance company continues making payments to the second annuitant in case the first annuitant dies, which would be either the same or at a reduced percentage.
Difference between a Single & Joint Annuity Plan
Provided are the differences between a single & a joint annuity plan:
| Basis of Difference | Single Annuity Plan | Joint Annuity Plan |
| Definition | This plan offers an assured income to a single individual throughout their lifetime. | This plan offers an assured income to more than one individual throughout their lifetime. |
| Pay-out Duration | The pay-outs continue until the annuitant dies. | The pay-outs continue until both the annuitants die. |
| Pay-out Amount | It includes payment of high payouts as it covers one life. | It includes payment of less payout amount as it covers two lives. |
| Beneficiaries | In case the annuitant dies, there is no income. | It includes payment to the second annuitant, i.e. the surviving partner, in case the first annuitant dies, but at a reduced amount. |
| Survivor Benefit | This plan does not include any survivor benefits after the death of the annuitant. | This plan includes survivor benefits at a reduced percentage, i.e. 100%, 75% or 50% of the original amount to the surviving partner. |
| Premium Cost | The amount of premium is low as the risk is on the lower side. | It includes a higher premium cost as it covers two lives. |
| Ideal For | This plan best suits those who are looking for an income at the time of retirement without any survivor benefits. | This plan best suits couples, where one individual is dependent on the other for future financial security. |
| Risk | The risk of retirement savings getting exhausted is on the annuitant. | As this plan ensures income for the surviving partner, there is less risk for savings getting outlived, lowering the financial risk. |
| Income Tax Considerations | The income is taxable under this plan to the annuitant. | The income under this plan is taxable to the surviving partner after the first annuitant dies. |
When Should You Choose a Single Annuity Plan?
One should choose a single annuity plan when:
- You are single, or you don’t have assurance on the amount of income earned, or your partner is financially independent.
- You want to get your monthly income increased.
- You have other savings or a joint life annuity, which will help your spouse after you die.
- If your partner has their own annuity plan & you are the older one.
When Should You Choose a Joint Annuity Plan?
One should choose a joint annuity plan when:
- You either have a spouse or a partner, & you want to ensure a continuous flow of income after your demise.
- You want to offer financial security to the surviving partner.
- You & your spouse are purchasing the plan to cover the life of both.
- You want a regular stream of income for both annuitants during the retirement period & in case one of them dies.
How Does a Single Annuity Plan Work?
Provided are the steps to be followed:
Step 1: This plan offers an assured income for the whole life of an annuitant.
Step 2: An insurance company starts making payments either in a lump sum or continuing regularly, i.e. monthly, quarterly, or annually.
Step 3: This amount depends on certain factors, such as age, health, amount of initial investment. An annuitant can also use the Annuity Calculator to calculate the income to be received.
Step 4: If an annuitant dies, there is no further benefit as the insurance company stops making payments to the beneficiaries.
Step 5: This investment should be such that it offers maximum payouts in comparison to other plans.
How Does a Joint Annuity Plan Work?
Provided are the steps to be followed:
Step 1: Partners are required to pay either in instalments or in a lump sum to purchase the annuity plan, letting you know the annuity amount that will be received.
Step 2: Thereafter insurance company pays a fixed or variable income to them on a monthly or annual basis.
Step 3: In case the first annuitant dies, the second annuitant remains in receipt of the annuity amount by the insurance company throughout their lifetime.
Step 4: The income received from this plan is taxable, making it important to consider taxation.
Conclusion
The choice of a single & joint annuity plan depends on the financial objectives, size of the family, income objectives, etc.
- Single Annuity Plan
This plan should be considered when you want to receive higher payouts, & there are no successors who depend on your income if you die.
- Joint Annuity Plan
This plan should be considered when you want an assured income in case you die, offering them financial security.
Hence, we can conclude that the single annuity plan includes receipt of income by a single annuitant & stops with their death. Joint plan, on the other h&, included receipt of income by two annuitants, mainly spouses, until their death. If you want to receive a high amount & don’t have any dependents, opt for a single annuity plan. But if you want to secure the financial future of your family members, especially spouses after your death, opt joint annuity plan, offering mental peace & financial security.