Annuity vs Life Insurance: What’s the Difference

Annuity vs Life Insurance: What’s the Difference? – Annuity vs Life insurance offers financial security that can help ensure a pleasant and peaceful future. It can help you take your mind off unexpected financial emergencies. And help accomplish your major goals. Annuity vs Life Insurance offers various features and financial benefits which are part of the instruments with varied features.

Annuity vs Life Insurance: What's the Difference

Annuity vs Life Insurance policies are tools that can help ensure that you have future financial security. Although these two have similar characteristics, they have some differences you need to look at. Understanding Annuity vs Life Insurance can help to make decisions in creating your retirement and financial planning strategies. In this article, there are a few points to show their difference which helps you choose between them for your financial benefit.

What is Life Insurance

Life insurance is a legal agreement or contract between an insurance company and a policyholder. Where the insurer agrees to pay a sum of money in exchange for a premium when the policyholder passes away or after a set period. This policy is mostly purchased to make sure that your beneficiary receives funds to replace. The loss of income you may have earned had you lived.

It is also secured to pay for obligations such as college tuition, mortgage, or funeral expenses. The beneficiaries are your family and loved ones but can be one person, multiple people, or even a company or organization. The two main life insurance policy types are;

  • Whole Life insurance; this type of policy helps to cover your whole life up to the age of 99 years. The death benefit is paid to the beneficiaries in case of the policyholder’s death.
  • Term Life insurance; in this case, the insurer provides coverage for a specified term in exchange for a premium paid over a certain period. If the policyholder passes away during the term stated in the policy. A death benefit is paid to the family member listed in the policy.

What is an Annuity

Generally, an annuity is purchased by people to provide a source of retirement income. It is an agreement on your purchase that guarantees that you will get a set amount of money every month for the rest of your life. This plan is designed to protect people as they age by creating a source of income they can depend on for the remaining years of their life. The two main Annuities types are

  • Deferred Annuity; this is a contract that helps generate income for your retirement years. In exchange for one-time or recurring deposits held for at least a year. An insurance company provides repayments of your investments with some return money.
  • Immediate Annuity; this insurance is a coverage which you start getting repayments as soon as your first investment is made. When a specific amount is paid to your insurer they will provide you with regular payments for a set period. And in most cases, it is for as long as you live. If you are almost at your retirement agent, then this plan is for you. Immediate annuity pays money while deferred annuity accrues.

You can purchase the deferred annuity plan that provides regular income at a later period. Or an immediate pension plan that provides a regular income immediately after you purchase it.

Difference between Annuity and Life insurance

The similarities between Annuity vs Life Insurance may lead you to make use of the terms alternatively. But you need to know the significant difference between Annuity vs Life insurance. So, that you can know exactly what you want and plan your financial ride. Here are some of the differences between life insurance and annuity;

    Annuity            Life insurance
Provides financial support for your loved ones when you pass wayIt provides a regular income for your needs after you retire.
The payout can be deferred later based on specific requirementsPayout benefits cannot be deferred
The death benefit is optionalOffers death benefit
A regular income will suffice for your financial support after your retirement until you pass awayThe death benefit will ensure a good amount for your loved ones to accomplish your financial goals. Or to help pay off your debts after your death,
Annuity benefits with the retirement policy combine a life cover based on the terms and conditions of the policy.Life insurance policy contains investment solutions and savings. You can get a return as regular income for a set period when the policy matures
The premium paid for the annuity provided by the insurer qualifies for tax deduction. However, know that the payout from the pension plans is taxableThe payouts and premium paid from the life insurance policy will qualify for exemption benefits and tax deduction

Just have stated many times above, Annuity vs Life Insurance are both financial plans for a long period. An annuity protects your assets while you are alive while a life insurance plan offers financial help to your loved ones when you pass away. Some of the similarities between Annuity vs Life Insurance include that they are both long-term safest investments that offer protection and are long-term investment plans. And annuity plans often carry a life cover.

Major Benefits of Life Insurance and Annuity

To check the right plan for you to decide on Annuity vs Life insurance, check your purchase of securing it. Life insurance may be a smart option if your purpose is to protect your loved ones financially when you pass away. Meanwhile, an annuity plan on the other hand can be of great benefit if you want a retirement income. 

The annuity plan provides regular income for retirement and tax savings. In layman’s terms, a life insurance plan protects your family when you pass away. While the annuity plan protects your income when you are alive.