Life Insurance vs. Annuity
Which is Right For You? Although both life insurance and annuities are very different, they can both play a role in providing financially for individuals and families as they age and retire. Here’s the quick version:
Life insurance is an insurance policy that pays out to the chosen benefactor at your death. It can provide income for loved ones and cover final expenses such as medical bills, funeral costs, and even help clear debts. There are two common types of life insurance: term life insurance and whole life insurance. Term life insurance is more affordable, with lower premiums, and has an expiration date, which is typically 10, 15, 20, or 25 years after enrolling. Whole life insurance is just that, for the person’s whole life until death.
Annuities are also a type of life insurance, but with a different structure. Instead of a death benefit, an annuity provides payouts over your lifetime. Because of this, it provides guaranteed lifetime income. There are also two types of annuities: immediate annuities and deferred annuities. Immediate annuities are contracts purchased with a one time payment to the insurance company and provide payments to you within the first year of purchase. Deferred annuities provide payouts that start at a future date instead of within the first year of purchase.
Which is Best For Me?
That depends on your situation. You’ll need to ask yourself the following questions:
Is a steady income in retirement something I want or need? If so, an annuity may be right for you.
Do you have loved ones that need to be provided for after you die? Life insurance is designed to do that.
Or, do you want to provide both forms of financial support – steady income in your later years and a death benefit for your loved ones? If so, it may be best for your situation to include both life insurance and an annuity, either immediate or deferred, in your financial planning.
Talking to a licensed financial advisor would be a good next step for anyone considering either life insurance, an annuity, or even both.
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