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Annuity gives investors peace of mind through stability. However, they must assess all aspects before making a decision.
Annuity Buying Guide: What Investors Often Miss
Annuities allow investors to assure sums in products offered by life insurance companies that enable a stable and sustained income flow to build a significant enough retirement corpus. Annuity plays a key role in retirement planning as it allows regulator income post the retirement.
The financial instrument gives investors peace of mind through stability. However, they must assess all aspects before making a decision. Investors who buy annuities without proper evaluation can end up with a product that may not suit their individual financial needs, says Ashok Manwani Vice President Products , Go Digit Life Insurance.
Here are some common blind spots that annuity buyers should avoid.
1. Buying Without Understanding the Product
Annuities are not one-size-fits-all and there are different types of plans available in the market.
Types of Annuities
Category Type Description
Based on Type of Returns Guaranteed (Fixed) Offers predictable, guaranteed payouts; ideal for conservative investors.
Variable Linked to market indices; offers growth potential but involves some risk.
Based on When Annuity Starts Immediate Payments begin right after the initial investment; suitable for those nearing retirement.
Deferred Payments start at a future date; allow accumulation and growth before payouts.
Many buyers don’t fully grasp these distinctions and end up with products that don’t align with their financial goals. Before buying a plan, always get better understanding of which type of annuity suits you, how it works and what risks are involved.
2. Purchasing a single-life annuity when you are not single
One critical mistake for those who are married or having a partner is opting for a single-life annuity to get a slightly higher payout. While this provides income until your death, the payments stop immediately thereafter, potentially leaving your surviving spouse in a insecure financial situation. A joint-life annuity is a far more prudent choice, as it ensures that your spouse continues to receive a pension after your passing, providing financial security for both of your lifetimes.
3. Lack of inflation protection
A fixed payment today becomes less valuable when inflation rises and may not provide any protection against rising costs. The value of a ₹50,000 monthly payment today will not suffice for basic expenses in the next 15-20 years of retirement period. One should consider an annuity option that offers an increasing annuity amount, linked to inflation, even if the initial payout is lower, thus protecting your purchasing power against inflation.
4. Choose Annuities That Flex with Your Life
Select annuities which adapt to your changing life circumstances. Your financial needs will change over time, and one should consider selecting plans that let you withdraw part of your money in case of financial emergencies or switch your payout method from annual to monthly or vice versa. On other hand, if you have surplus money over a period of time, your existing annuity plans should enable you to invest more money (through top-up). This feature can help you fight inflation over time and enable your annuity to expand with your financial growth.
5. Locking Up Too Much Money
Annuities are illiquid by design. Once you invest, accessing your funds can be difficult and expensive. If you tie up a large portion of your savings, you may struggle to cover unexpected expenses like medical emergencies. A good rule of thumb is to keep a portion of your portfolio in liquid assets and only annuitize what you truly need for guaranteed income over time.
6. Overlooking Digitally Enabled Providers
Choosing an annuity provider goes beyond product features, it’s about ensuring a complete, reliable experience. Digital-enabled providers enhance convenience with e-KYC, video verification, real-time policy issuance, secure annuity payout options, and 24/7 accessibility.
Additionally, after Annuitant starts receiving annuity payouts, he/she needs to provide Living Certificates (or Life Certificates) at regular intervals to annuity providers to confirm that one is alive and ensuring regular annuity payouts, thereby helping prevent fraudulent claims. Digital-enabled providers simplify this through digital processes and instant confirmation from home, eliminating physical visits and paperwork, making convenient for the annuitants who in general are elderly individuals. In contrast, annuity providers without digital capabilities lead to delays, more paperwork, and reduced efficiency.
7. Not Shopping Around
It is important to shop around and compare different annuity plans as annuity rates, features, fees, and terms vary significantly across different providers, which direct impact your future income and financial security during retirement. An annuity is a long-term contract, so you should evaluate different plans in the market to choose the one that suits you the best for your retirement period.
8. Ignoring the Issuer’s Financial Strength
An annuity is a long-term commitment spanning decades. Your annuity income stream may be at risk when the insurer that provided your annuity policy is not financially strong. Ensure you purchase from a reliable and solvent insurer with a strong track record of honouring its commitments. The regulatory body provides regulations and oversight for these products, but individual diligence is still required.
9. Being unaware of tax implications
One should understand the tax benefits during the accumulation phase if deferred annuity is being purchased and the taxability of the annuity income received during retirement. Consulting a financial advisor can help you get more clarity on tax implications.
10. Failing to Align with Your Retirement Plan
Annuities should complement your broader retirement strategy. Buying one without considering your other income sources (like pensions, investments, or rental income) can lead to redundancy or missed opportunities. For example, if you already have a reliable and lifelong source of income which is sufficient to take care of expenses during next 20-30 years of your retirement period, a lifetime annuity may not be necessary. Work with a financial planner to assess how an annuity fits into your overall plan.
Annuities can be a valuable part of a retirement portfolio, offering stability and peace of mind. However, they require a careful consideration.
Click here to add News18 as your preferred news source on Google. December 18, 2025, 08:15 IST
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