What Is Annuity and How to Calculate It?

Nov 14, 2019 | 3 weeks ago | Read Time: 3 minutes | By iKnowledge Team

Before getting into the concept of calculating the amount of annuity pay-out for your plans, it is very important to understand a little more about these plans and how they usually pay their beneficiaries.

What are Annuity plans?

An annuity plan is one that provides you periodic payments for a term that you have chosen, for the amount that you pay as premiums. Your payment can be paid as a lump-sum or over at a specified frequency. The insurance company agrees to pay out the annuities to you either immediately or at a future date. These annuity plans are retirement plans that help you enjoy regular income payouts so that you can continue the same lifestyle as before after you have retired as well.

Annuity plans can be classified into two broad categories – fixed and variable. Fixed plans are those that carry a guaranteed rate of interest. Variable plans are those that invest your premiums in other investments; therefore, their rate of interest depends on the performance of the market.

How do the annuity plans make pay-outs?

This will be pre-decided between you and your insurance provider, at the time of signing up for the plan so that there is no ambiguity later. You can opt for any one of the following pay-outs that are commonly associated with these plans:

  • Plan keeps paying the agreed amount to the policyholder according to the frequency that was agreed upon earlier. In the event of the death of the policyholder during the term, the balance annuities are paid to the beneficiary.
  • Plan continues to pay until the policyholder’s death; there is no concept of the beneficiary and hence, no payments after the death of the policyholder.
  • Plan continues to pay out the periodic payments to the beneficiary throughout his or her life
  • Plan is limited to a specific time-frame; this will include pay-outs to the beneficiary after the policyholder’s death, but only till the agreed tenure

Calculating Annuity Pay-outs

If you want to know how much your plan would pay you approximately, you can use an annuity calculator. You can also use this calculator to find out how much you need to pay as the principal to get a plan run for a specified term.

For example, if you want to know how much you can withdraw from your annuity plan monthly, you need to enter the following details in the annuity calculator India:

  • Keep the withdrawal amount as blank, because that is what you want to know
  • Choose “monthly” in the section, interval between withdrawals
  • Enter the principal amount that you can pay for this plan
  • Enter the growth rate of the plan (this should between 0 and 20%)
  • Choose the term for your annuity plan

When you click on ‘Calculate’, you will get the amount that your annuity plan will pay you out, every month.

Alternatively, you can also check how long your annuity plan would last by keying in all the above (including the monthly withdrawals that you would like), but keep the term column as blank.  By entering all the other details, and keeping the growth rate as ‘Blank’, this calculator will help you understand the approximate annual returns that your principal will generate.

Before opting for annuity plans, it is very important to have a detailed understanding of them. Each annuity plan is different from the other as it has different pay-out options, premium payment terms, death benefit details and the like. You can talk to your insurance company for any queries on these and read the terms of the policies carefully, to ensure 100% clarity. Annuity plans have the potential to provide lifetime income, even after you have retired; therefore, you need to understand them well to make good use of them. To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


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