Annuity Plans

Annuity and Pension are often used as synonyms. Pension is given by the State or King or Government or Employer in recognition of the services rendered by the pensioner to the state/king/government/employer. No price need be given for getting a pension.

Annuity is purchased – always paying a price. Bismarck of Germany who is credited with introduction of pension did actually introduce annuity (and not pension) through his Old Age and Disability Act, 1889. The worker, employer and the State – all the three were required to contribute to a fund for providing annuity to workers.

Annuity is the reverse of life insurance. In life insurance premiums are paid in installments and benefits are taken in lump sum. In annuity, premium (called contribution) is paid in lump sum and benefits are taken in installments. Of course, now there are Plans with annual, half yearly, quarterly and monthly premium payment options. In life insurance premium is based on mortality rate. In annuity premium depends on survival rate.

Life insurance companies market annuity plans. Benefit payments depend on various options exercised by annuitants. In future Posts we will see more details on annuities.