Understanding the Difference Between Life Insurance and Annuities

While both fixed annuities and life insurance policies are offered by insurance companies and serve to protect your financial future, these products are designed to meet different needs.

Generally, life insurance provides a death benefit to your beneficiaries after you pass away. Some types of life insurance may also include a savings component that can be accessed while you’re still alive. On the other hand, fixed annuities do not offer a death benefit; instead, they provide a steady stream of income, similar to a pension, that can help support you during retirement.

At their core, life insurance is meant to benefit loved ones after your death, while annuities are designed to offer ongoing payments to you during your lifetime.

Here are the key distinctions between life insurance and annuities:

• Beneficiaries: With annuities, the primary beneficiary is often the policyholder, and in some cases, their spouse, who receives regular income payments. Life insurance, on the other hand, designates a spouse, children, or other loved ones as beneficiaries, who receive the death benefit after the policyholder’s passing.

• Funding: Annuities are typically purchased with one or more lump-sum payments made to the insurance company. Life insurance policies, however, are usually funded through periodic premiums, such as monthly or annual payments.

• Payouts: Life insurance generally provides a lump-sum death benefit, whereas annuities typically offer monthly or periodic payments over time. In some cases, life insurance payouts may also be adjustable.

• Timing of Purchase: Annuities are often purchased later in life as a source of supplemental retirement income. Life insurance, by contrast, is usually obtained earlier, when death benefit protection and the potential savings component are more important for family and loved ones.

• Underwriting: Life insurance typically requires an application process that assesses factors like age and health. Annuities, however, do not usually require underwriting.

Both life insurance and annuities offer valuable financial advantages, but each comes with its own set of rules and considerations.

For guidance on choosing the right policy for your unique financial situation, contact the insurance professionals at Concierge Insurance Group. We can help you explore solutions that align with your goals and needs.

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