What is an annuity?

June 22, 2008

What is an annuity? Where do you see this? -In insurance policies and investment websites.

What does it mean? It is an insurance plan that is usually bought for retirement. It provides a guaranteed regular income to the policyholder for life, or for a specified period.

An annuity is typically bought with a single lump-sum investment.

Annuities come in different forms. For instance, participating types are entitled to share in the profits of the insurer, which are paid in the form of non-guaranteed bonuses.

In Singapore, you can use either cash or the Central Provident Fund (CPF) minimum sum to buy annuities.

Why is it important?

The most important benefit is the stream of regular monthly or yearly income payable at a specified age until death. Simply, the longer you live, the more you get.

It is a suitable instrument for consumers wishing to hedge and address the risk of living beyond their means.

In fact, some financial experts believe that every retiree who has just adequate savings should buy an annuity. This ensures that the savings can meet living expenses and last for a lifetime.

However, if the retiree has more than adequate savings and there is no risk that the entire savings will be drawn down during his lifetime, he can handle his own investments without having to buy an annuity.

So you want to use the term. Just say...

The recently announced CPF Life scheme is an annuity for CPF members to ensure a lifelong income.
Lorna Tan