What does insurance do?
Your local life insurance Agent sells, well, insurance, and that’s pretty easy to understand. But your local life insurance Agent may also sell life annuities. Which should you choose? What are the pros and cons of buying insurance vs. an annuity?
As always, when it comes to money matters, we urge you to consult with your financial advisor before making any decisions.
With a life annuity, you pay in, and down the road may be rewarded by receiving funds back. With insurance, you pay in premiums, and are paid out if certain conditions are met – death, illness, injury, etc.
What Is An Annuity?
“Annuity” is a general term for a payment made in regular installments. Life annuities involve paying premiums for a set period of time, after which the annuity “matures” and in turn pays you interest on the full amount. The most common types of annuities for life insurance Agents to sell are fixed and indexed; fixed annuities have one set interest rate determined by the Agency, while indexed annuities offer a menu of set interest rates from which you may choose1.
How Is An Annuity Different From Insurance?
With a life annuity, you pay in, and down the road may be rewarded by receiving funds back. With insurance, you pay in premiums, and are paid out if certain conditions are met – death, illness, injury, etc. Insurance policies may never realize a return, and as such, premiums can be lower than what you’d pay into an annuity.
Which Do I Choose, Insurance or An Annuity?
Life insurance can help ease the financial burden death leaves behind. If you purchase a life insurance policy, you potentially pay premiums for the duration of the policy and, if you die while the policy is effective, the policy will give a cash payout to your beneficiary (the person you designate to receive a cash benefit upon your death).