You may have heard of both annuities and life insurance, but what’s the difference between the two? While they’re similar in that they both provide a financial safety net, they differ in the amount of money that is paid out and who receives it. When thinking about your financial future, it’s important to know whether life insurance or annuity is the best fit for your needs and goals. In this article, we’ll walk you through the differences between life insurance and annuities and the benefits of each, so you’ll be more equipped to make decisions about your financial planning.
Types of Life Insurance
Life insurance is an easy way to make sure your loved ones are financially protected should something happen to you. Life insurance benefits can be used for school expenses, mortgage payments, paying down debt and more. There are several types of life insurance, with the two most common types being term life insurance and permanent life insurance.
Term life insurance
Term life insurance is one of the most affordable forms of life insurance. As the name suggests, you have the option to choose your term length and only buy it for as long as you need it. The lengths typically available are 10, 15, 20, 25 and 30 years.
Permanent Life Insurance
Permanent life insurance includes a number of life insurance products that provide lifelong protection. Permanent life insurance premiums go toward both maintaining the policy’s death benefit and allowing the policy to build cash value.
Whole Life Insurance
Whole life insurance is a type of permanent life insurance and provides a set amount of coverage for as long as you live, for which you pay monthly premiums. In addition to providing a death benefit, whole life insurance also includes a savings component known as the cash value.
Universal Life Insurance
Universal life insurance is a form of permanent life insurance that has a primary benefit of using the policy’s cash value to pay for premiums. The value accrues and earns interest (which is subject to change) as you pay monthly premiums, lending the opportunity to also act as a savings account.
Simplified Issue Life Insurance
Simplified issue life insurance is a form of final expense insurance in which your coverage is based on a questionnaire on your health and lifestyle rather than a medical exam. Simplified issue life insurance can be a good life insurance choice for both seniors and individuals with health problems.
Guaranteed Issue Life Insurance
Guaranteed issue whole life insurance is just as the name implies; guaranteed. If you’re between the ages of 45-85, you can’t be turned down, therefore it’s often a promising life insurance choice for seniors or individuals with health concerns. Oftentimes, no medical exam is required.
Understanding Annuities
Annuities are a contract with an insurance company in which you agree to pay the carrier a certain amount of money, either in a lump sum or through installments. This entitles you to a series of payments that last for a specific time span. There are two types of annuities—deferred annuities and immediate.
Immediate annuities: An immediate annuity is a one-time, lump sum contribution that is converted into an ongoing source of income for a specified amount of time. This is the most basic type of annuity.
Deferred annuities: A deferred annuity is an insurance contract that promises to pay the annuity owner either a lump sum or a recurring amount at some point in the future. One of the most common reasons people buy deferred annuities is to supplement their Social Security benefits and other sources of income for retirement.
Which is better for you—life insurance or annuities?
While life insurance guarantees income in the event of your death, annuities guarantee income in the event you live longer than expected. Whether a life insurance policy, an annuity, or both is right for you, it can be determined by long-term plans for your money and your lifestyle. You’ll want to figure out whether your goal is to provide income for yourself while you live or to provide income for your family in the event of your passing.
SelectQuote Can Help You Decide if Life Insurance is For You
Making decisions about life insurance can be overwhelming. At SelectQuote, we search highly-trusted carriers on your behalf, comparing prices and coverage for you to find the right policy for your needs. Our process is quick and easy, saving you time and making sure your loved ones are financially protected.
