How Life Insurance and Annuities Differ

Annuities and life insurance are an excellent way for you to prepare for retirement and both products should be considered for a solid financial portfolio.

Although they both have death benefits, the benefits are applied under different circumstances. In essence, life insurance benefits are applied in the event you die too soon and annuity benefits are applied if you live too long.

Another way to look at it is life insurance protects your loved ones if you die before your financial obligations are met and annuities protects you if you outlive your retirement assets.

Here are some basic features of the different types of annuities and life insurance plans to consider before investing:

Term Life Insurance

• Purchased to provide income for dependent in the event of death.
• Usually purchased from individuals 25-50 years old.
• It does not accumulate money tax deferred.
• Pays out when you die typically in one lump sum.

Whole Life Insurance

• Purchased to provide income for dependents in the event of death as well as to provide financial planning needs.
• Usually purchased from individuals 30-60 years old.
• Accumulates tax deferred.
• Pays out in three different ways depending on circumstances: death, borrow against the policy, or surrender the policy.

Deferred Annuities

• Purchased to invest and contribute tax deferred.
• Buyers typically 40-65 years old.
• Accumulates tax deferred.
• Death benefit pay out can be a single sum or monthly withdrawals to give a steady cash flow.

Immediate Annuities

• Purchased to give coverage against outliving retirement income.
• Buyers typically 55-80.
• Accumulates tax deferred but only if you have early payout.
• Pay out is for a period of time but it stops when the annuitant expires, however payments will continue at death if the annuity has an option of "guaranteed period" and it hasn't expired when the annuitant expires.

There are many uncertainties that a family will face in their lifetime. Disability of the family provider is one of those risks. Annuities can help protect the family with needed income in case you are unable to work.

Before investing in any kind of retirement annuity rates, it is very important to consult with a financial advisor who is experienced with them. Annuities can be very complicated, but an advisor can take into account the details of your financial goals and ambitions as well as the performance of your financial portfolio before recommending a certain type of annuity.