Annuities Vs. Life Insurance

Legacy Optimizer

Retirement planning using life insurance

Which Plan Is Better?


The key to determining which plan is right for you an annuity or life insurance — is to look at your purpose. If your main purpose is to help your dependents and other beneficiaries pay for your final expenses, bills and have remaining money left to live on, your best bet is life insurance since this is passed on tax-free to your beneficiaries. On the other hand, if you are looking for a plan that offers you a retirement income then you should be considering annuities.


The annuity offers tax-deferred savings and retirement income. Simply put life insurance protects your loved ones if you die prematurely while the annuity protects your income if you live longer than expected. Both plans do provide death benefits but each is a very different option for different purposes. If you need guidance in deciding if a life insurance plan or annuity is right for you, consult a life insurance or annuity planning consultant to discuss all the options.



Which Is Right for Retirement Income?

While annuities and life insurance both have similarities, they are not the same. Before you can understand the differences and determine which plan may be right for you relating to a retirement income plan, you have to first understand the key elements of each.


Life Insurance

Life insurance plans provide income for your dependents if you die sooner than expected. Most life insurance plans can be divided into either term-life or whole life insurance. A term-life insurance policy covers a specific period of time, generally, 10, 20 or more years, whereas the whole life insurance policy is for the entire life of the policyholder. Some term life insurance policies offer the option to be converted into a whole life insurance policy when the term expires. Many life insurance policies do offer cash value and income-earning options as well as other living benefits like a critical care coverage option; however, this is not the main function of a life insurance policy. Its main function is to care for your dependents after your death and pay for end-of-life/final expenses.



Annuity plans are designed to provide retirement income to the plan owner if he lives beyond the expected lifespan. Annuities provide tax-deferred savings for retirement income. While the annuity does have a death benefit to beneficiaries, it is not tax-free. Annuities are generally referred to as deferred, immediate or longevity annuity plans.


Deferred Annuity

The deferred annuity is just as it sounds. The income is deferred after premiums are paid until a later date, perhaps several years. Deferred annuities are further broken down into fixed (traditional, Fixed Indexed (FIA) and the Variable Annuity. The main differences in the types of deferred annuity plans are in how the interest is earned and whether the individual is looking to make a safe investment or are looking for market-like returns with greater accumulation value potential.


Immediate Annuity

The immediate annuity pays benefits starting no later than one year after you have paid your premium to the insurance company. Most immediate annuities are purchased with a one-time, lump-sum payment and are designed to begin paying out no later than one year after the premium has been paid. This annuity plan is designed for people looking for a guaranteed income for life.








Protect your future with guaranteed income for the rest of your life. Speak with our financial experts today to find the best options for your financial situation.


What is an Annuity?
Annuities are contractually-executed, relatively low-risk investment products; the insured (usually, an individual) pays a life insurance company a lump-sum premium at the start of the contract. That money is to be paid back to the insured in fixed, incremental amounts, over some future time period (predetermined by the insured). The insurer invests the premium; the resulting profit/return on investment fund the payments received by the insured, and, compensate the insurer.

Conventional annuity contracts provide a predictable, guaranteed stream of future income (e.g., for retirement) until the death(s) of the beneficiaries(s) named in the contract, or, until a future termination date – whichever occurs first. These financial instruments have been used to accumulate funds and provide significant and sudden increases in personal income (via future, lump-sum withdrawals), all while legally avoiding the taxes (e.g., income-, capital gains-, estate-) that would otherwise be assessed on them.


Immediate Annuities vs. Deferred Annuities

An Immediate Annuity is an insurance policy which, in exchange for a sum of money, guarantees that the issuer will make a series of payments. These payments may be either level or increasing periodic payments for a fixed term of years or until the ending of a life or two lives, or even whichever is longer.


A Deferred Annuity is a contract that is chiefly a vehicle for accumulating savings with a view to eventually distribute them either in the manner of an immediate annuity or as a lump-sum payment


Longevity Annuity

A longevity annuity plan is a type of fixed-income annuity which can be issued at any age with income deferred up to 45 years. Typically, plans of this type do not plan out until the holder is 80 years of age or older. Think of it as a supplemental pension plan that can kick in once your regular retirement plan may be declining in its payout or have stopped altogether.


Where Can You Buy a Life Insurance/Annuity Plan for Retirement Income?

There are many reputable companies offering both life insurance and annuity plans. You can find a company either on your own or through your own insurance agent. If doing the search yourself, consider some of these top-rated companies offering both plans when comparing rates