Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Monday, 22 June 2015

What is a Life Annuity Plan?

What is a Life Annuity Plan?

Definition (quoted from Investopedia)

Simpler Definition
1) It is an insurance plan
2) Mainly used for retirement
3) Involves you paying a monthly amount or 1-lump-sum to the insurance company to create a pool of money (Fund). 
4) the Fund will be used for investments until you reach the age to draw money from your fund
5) You will draw monthly income (distribution) from your Fund when you reach your draw down age
6) You will draw from the fund monthly until you die
7) In the event you outlive your Fund, the insurance company will take over and continue to pay you your monthly income
8) If you die before you finish utilitising your Fund, the money remaining MIGHT be paid out to your beneficiaries

Simplest Definition
There are many different type of annuity plans, each with many different terms and conditions.
But overall, they work pretty much the same way:
1) You need to pay either a monthly sum or a 1-lump-sum to the insurance company
2) The insurance company will pay you a monthly amount of money from a certain age and until you die.
3) Between the time you pay and the time you start to draw your monthly payout, the money is used to invest and grow so that you can get a possible larger monthly payout.

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