What is Deferment Period in an Annuity Plan?

Retirement planning is crucial to ensure a stable and prosperous life during your golden years. And one of the best ways to get regular income after retirement is to invest in an annuity plan. Annuity plans are financial instruments offered by life insurance companies that provide regular lifetime income once after a ‘deferment period’. The duration of your deferment period depends on the specific terms of your plan. These plans are mostly designed for long term savings. You can also opt for a plan with no deferment period at all if you want to start getting payouts immediately.

How Long is an Annuity Plan’s Deferment Period?

You get to select your own deferment period during the inception of your annuity plan. Deferment periods can range anywhere from 5 years to 12 years (or more), depending on your personal choice. Most annuity plans are quite flexible and allow you to choose between multiple deferment periods.

Note that deferment period is only applicable for ‘deferred annuity plans’. If you don’t want to wait before getting your income, you should opt for an immediate annuity plan. In an immediate annuity plan, you start getting regular payouts as soon as you pay your first premium instalment.

What are the Benefits of a Deferred Annuity Plan?

While immediate annuity plans have the advantage of day-one income, the downside is that the income payouts are relatively modest. On the other hand, in a deferred annuity plan your savings grow at a fixed or variable interest rate during the deferment period. This means that you will start receiving enhanced annuity payouts once your deferment period ends. Moreover, the premiums you pay towards an annuity plan are eligible for tax benefits. The money your annuity plan accrues during the deferment period is also not taxable.

This means that deferred annuity plans are ideal for long-term savings and for those who do not need immediate income. If you still have a few years to go before retirement, then choosing a deferred annuity plan might be the right choice for you.

How Long Should Your Deferment Period Be?

Ideally, your deferment period should match your timeline for retirement. for example, if you still have 10 years left for retirement, then you should look for an annuity plan that offers a 10-year long deferment period or more. This will allow your savings to mature for a long period of time, ensuring that you get a greater payout once the deferment period ends.

Benefits of Deferred Annuity

• Flexibility with choice of deferment period

• Higher annuity payouts as savings are allowed to grow

• Guaranteed income source to ensure a stable retirement

• Multiple payout options allowing you to customize your income payments

Conclusion

Choosing the right deferment period for your annuity plan is crucial to ensure a steady and adequate income for your post-retirement life. Your deferment period should be based on the number of years you have left before retirement. Moreover, you should also consider how much income you want post-retirement. Keep in mind that the longer the deferment period the higher your annuity payouts will be (assuming premiums paid are the same). If you want a deferred annuity plan that also offers life cover for the policyholder’s nominees, then consider Edelweiss Life- Active Pension Plus.

 

Aastha Mestry - Portfolio Manager 

An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.