Would it surprise you that up to 75% of Americans are winging it with their financial future? Not only are many living paycheck to paycheck, but they also can’t afford a surprise expense.
If this group isn’t prepared for a small expense, it’s not likely they’re doing much financial planning for the future.
But it’s smart to think about your financial future and plan for it. Financial planning is important whether you’re considering retirement or what would happen to your loved ones should you die.
Are you wondering about an annuity vs life insurance? You’ve probably heard both when considering planning for the future. Which option is right for you?
Read on to learn more about annuities and life insurance and how they compare.
What Is an Annuity?
An annuity is a type of contract arranged with an insurance company. You invest in an annuity, which then provides you income spread out over a period of your life.
There are two main types of annuities. In a deferred annuity, you buy in with one large lump sum or contributions over a period of time. Then at a predetermined date, later on, the annuity starts paying back.
There are also three different versions of the deferred annuity, including:
- Fixed annuities
- Variable annuities
- Fixed-index annuities
The other type of annuity is the immediate annuity. When you buy an immediate annuity, you pay in with one lump sum or make payments. Within a year, the annuity starts to pay back.
The intention with an annuity is more to get the invested money back while you’re still alive.
What Is Life Insurance?
Life insurance is another type of contract you can enter with a life insurance company. You purchase a life insurance policy for a set amount of money, pay your premiums, then, upon your death, that amount gets paid to beneficiaries.
Most life insurance guides will cover the many different types of life insurance. The two main types are term life insurance and whole life insurance.
In term insurance, you purchase a policy that’s in place for a set number of years, like 20 years. You pay premiums during that time. If you die during that period, then the death benefit is paid to your beneficiaries.
In term insurance, your policy remains in place during the term as long as you continue to pay premiums. However, once the term expires, you’re no longer insured.
The other main type of insurance is whole life insurance. This type of insurance remains in place during your whole life, without expiring, as long as you continue to pay premiums.
Whole life insurance offers the option to act as an investment and grow in value. Some whole life policies allow you to borrow against them for things like medical expenses or college.
Some whole life policies also offer paid up additions, which allow you to increase the policy’s value later on.
Annuity vs Life Insurance: Know the Difference for Your Financial Planning
When comparing an annuity vs life insurance, one key difference is when you get paid by the insurer. An annuity pays while you’re still living, while life insurance pays a death benefit after you’ve passed.
You want to know your own goals for investing when you decide which option is best for you.
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