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The Difference Between Annuities And Life Insurance

Admin • Jan 09, 2020
Both annuities and life insurance should be considered in your long-term financial plan. While both include death benefits, you buy life insurance in the event you die too soon and an annuity in case you live too long. In other words, life insurance provides economic protection to your loved ones if you die before your financial obligations to them are met, while annuities guard against outliving your assets.

Comparing deferred and immediate annuities

There are two main types of annuities-deferred and immediate-and two main types of life insurance-term and whole life.
Main reason for buying it
Pays out when
Typical form of payment
Buyer’s age when it is typically bought
Accumulates money tax-deferred?
Pays a death benefit?
Are benefits taxable income when received?
Life Insurance
Term life
Provide income for dependents
You die
Single sum
25-50
No
Yes
No 
Whole life
Provide income for dependents or meet estate planning needs
You die, borrow the cash value or surrender the policy
Single sum
30-60
Yes
Yes
No, unless a cash value withdrawal exceeds the sum of premiums
Annuities
Deferred annuities 
To accumulate money in a tax-deferred product
You make withdrawals
Single sum or income
40-65
Yes
Yes
Yes, but only the part derived from investment income
Immediate annuities
To assure you don’t “outlive your income”
One period after you buy the annuity, stops paying when you die*
Lifetime income
 55-80
 Yes, but only in the early payout years
*payments continue if the annuity has a guaranteed-period option that hasn’t expired at the annuitant’s death
Yes, but only the part derived from investment income
https://www.iii.org/article/the-difference-between-annuities-and-life-insurance
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