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How Do Annuities Differ from Life Insurance?

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You're interested in planning for your retirement, but you aren’t sure how to invest your money now into your retirement. It can be hard to decide where to put your savings.

When considering your retirement finance options, two to consider are life insurance and annuities. Before choosing which one is best for you, it's important to consider the differences in value and use of both annuities and life insurance. Generally, life insurance is primarily used for final expenses while annuities are used to fund retirement expenses.

An Annuity during your retirement

Annuity products can offer income throughout retirement. It's a way to keep making money even after you're no longer working. You may not know what you will need to spend your money on throughout your retirement. What if your savings are not enough? An annuity could continue to give you the money you need.

An annuity works by buying the product now to receive a stream of payments later. Then, depending on the product, you will wait a bit to start receiving payments. For example, purchasing a deferred annuity starts by buying the product, next, waiting for a couple of years, and then you will start to receive payouts. You can decide how frequently you would like to collect your income, or how long the annuity will last- limitations may be placed depending on the product or where you’ve purchased it from.

After you decide on an annuity, you will need to think of your annuity plan, or how you will receive payouts from your annuity. It's important to make an annuity plan based on the product you've purchased and your needs. You will decide, with some product limitations, the amount and frequency of your payouts. Some offer lump sums, while others provide annually or monthly payments to you.

You may be worried if your annuity will work for you. Your money is not taxed upon purchasing an annuity product, but there are taxes on annuities as you receive payments. This does mean that all of the money you put into the product will be working for you, and you will receive it after taxes at the annuity income payment rate that is right for you.

Life insurance for final expenses

You may be thinking about your family and the burden of final expenses as part of your retirement plan. A life insurance product can be used for final expenses such as hospital bills or funeral costs. Life insurance products are funded by a policy premium that is paid annually. Your beneficiaries/beneficiary will receive a death benefit once you pass away. This death benefit will be transferred to your beneficiaries to use without restriction.

Retirement can be an unpredictable time, but life insurance or annuity products can offer some peace of mind.

Benefit/Feature Life Insurance Annuity
Final expenses X X
Retirement income   X
Taxes X X
Death benefit X  
Stage of Your Life Life Insurance Annuity
Recent Marriage/Union X  
New Children X  
Business Owner X X
20 years from retirement X X
15 years from retirement   X
About to retire   X

Everything you need for the life of your retirement

Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals' particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors.