Life Insurance versus Annuity

There is a longstanding debate regarding life insurance versus annuity. In reality, the two can be acquired to give security to you and your family’s finances in the coming years. In considering making a long-term investment such as financial security after retirement, it’s normal to take into account the different types of investment offered. The disparity between life insurance and annuity appears negligible. Both provide similar goals of giving the insured a relaxed and financially secure life after retirement. It is important however to tell apart the distinctions between these two to discover what suits you right.

There are various questions one may ask in comparing the two kinds of investment, such as “Do they both provide insurance at the death of the insurer?” or “Which is better and offers more financial security?” Again, what is important to take note is which is right according to your needs, be it a life insurance coverage or annuity. Advantages should be weighed against each other and the nature of both types of investment should be discussed to come up with the right decision. An annuity may work well with one individual, while a life insurance plan may work well with another person.

An annuity is an agreement between an insurer and an insurance company, where the insurer purchases an annuity against a substantial sum of money. In return, the insurance company guarantees to return the value of the annuity in numerous installment payments or through a lump sum disbursement. A contract, wherein the insurer may receive a stable income until he or she passes away, can be made also. As a result, an annuity presents a safe and steady source of investment transforming into income.

Other significant features of annuities include high rate of return, tax deferred status, fast growth of savings, and sure enough, a secure investment.

A life insurance policy, on the other hand, is an agreement between an insurer and an insurance company which is meant to meet the needs of the beneficiaries which may be the loved ones left behind when the insurer dies. From the life insurance plan, the beneficiaries obtain an amount of money that surpasses the cost of the premiums the insurer had paid. If the insurer dies during the contract period, surely the beneficiaries receive such benefit.

The difference between the two types of investment generally lies in the disparity with regard to benefit and the time it is bestowed. An annuity intends to support the insurer’s financial needs through a steady income, while a life insurance plan intends to support the beneficiaries of the insurer. An annuity returns the sum value of the investment, including the profits gained from it. A life insurance plan returns a sum amount which may be way more than the premiums paid by the insurer.

To sum it up, annuities systematically allocates accrued assets, lessens the financial uncertainty of living too long, provides the annuitant an income for life in exchange for a premium wherein a premium is ascertained by sex, age, class of annuity, amount of income and health. Life insurance, meanwhile, generates an estate, diminishes the financial uncertainty of passing away too soon, grants the beneficiary a specified amount at death of the policyholder in exchange for a premium which is determined by sex, age, type of insurance, amount of death benefit and health.