Life insurance policies and annuities are two very different financial products that are often poorly understood. They are different from each other – in terms of how they work, whom they are best suited for, and the financial benefits they offer.
Differences Between Life Insurance and Annuities
Death Benefits vs Living Benefits
The primary difference between a life insurance policy and an annuity is that the former is designed to provide you with death benefits whereas the latter is designed to provide you with benefits during your lifetime, although life insurance can also be designed to include living benefits.
The primary purpose of most life insurance policies is to provide your family or designated beneficiary with a sum of money in case you die, usually to compensate for the financial loss they will suffer. An annuity, on the other hand, is to provide you with a regular stream of income until your death, so that you never run out of money to meet your day-to-day expenses while you are alive.
Life insurance policy documents and annuity contracts can be very complicated for you to read and understand. If you are not sure whether you should buy a particular policy or annuity or if you think that the agent is not being honest with you with respect to the products they are trying to sell, it’s a great idea to consult a life insurance attorney who can provide you with the guidance you need.
Target Consumer Base
Life insurance policies are generally marketed to young and middle-aged people, because the premiums become very expensive at older ages.
Annuities, on the other hand, are often marketed to retirees or people who are about to retire. The annuity provides them with a monthly income that they can rely on for the rest of their lives.
Mode of Payout
Life insurance policy death benefits are typically paid out in a lump sum payment. Most companies also offer you the choice of receiving a series of payments. The vast majority of beneficiaries prefer to receive a lump-sum payment in the event of the policyholder’s death. Life insurance death benefits are completely income tax-free under most circumstances.
Annuities, on the other hand, are designed to provide you with a monthly income for the remainder of your life. In fact, the very purpose of investing in an annuity is to make sure that you do not outlive your retirement corpus.
Some life insurance claims are denied for various reasons. In such cases, rather than taking on the might of the insurance company by yourself, seek the help of a skilled life insurance lawyer who can recover the amount you are owed through negotiation, mediation, or litigation.
Taxability
This is one of the biggest differences between a life insurance policy and an annuity. The death benefit paid out by an insurance company is not taxable. The monthly payments from an annuity, on the other hand, are taxable.
Highly Experienced Attorney for Life Insurance Claims in California
Benjamin Blakeman has more than 40 years of experience as a lawyer, over 20 years of experience with life insurance, and 11-plus years as a certified mediator. He also has direct experience selling life insurance. He understands the life insurance and can provide you expert legal advice on life insurance, annuities, and financial elder abuse.
THE FOREGOING IS NOT INTENDED TO BE EXHAUSTIVE AND IS NOT TO BE CONSIDERED LEGAL OR FINANCIAL ADVICE, NOR IS IT AN OFFER TO SELL LIFE INSURANCE OR ANY OTHER PRODUCT.
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