Annuity and life insurance, both the terms are related to the financial security of people. As they ensure almost the same kind of service, they might appear to be the same thing, but they are not. They have differences in their purposes work methods.
Annuity vs Life Insurance
The difference between an annuity and life insurance is that annuities are contract-based, whereas life insurance is a kind of policy. An annuity offers money during your lifespan, but life insurance offers money to your family after your demise. Annuity performs as salary for the people who are old and can not work anymore. Life insurance is to secure the family members’ future after death.
An annuity gives money according to the contract to the annuitant during his lifetime. The objective of annuities is to support the old aged people. Annuities produce a constant income for the people as they grow old. This contact liquidates an estate.
Life insurance functions like the opposite of annuity. It provides money after the death of the person who takes the insurance. The money is given to the closest family of that person. It is financial security for the further. This policy is very popular with people.
Comparison Table Between Annuity and Life Insurance
|Parameters of Comparison||Annuity||Life Insurance|
|Definition||An annuity is a type of contract according to which you will be subjected to collect a certain amount of money for the rest of your life.||Life insurance ensures to provide financial security for your family members after you pass away.|
|Objective||The objective of annuities is to support the old aged people. Annuities produce a constant income for the people as they grow old.||The objective of life insurance is to support families after they lose the main earner of the family.|
|Process||According to the contract, the people will get a fixed amount of money each month for the rest of their life.||According to life insurance, the family of the beneficiaries will get a certain amount of money after the beneficiary pass away.|
|Income||It guarantees income during the lifetime of the beneficiary.||It assures income after the death of the beneficiary.|
|Estate||It liquidates an estate.||Life insurance creates an estate.|
|Type||An annuity is a type of contract.||Life insurance is a type of policy.|
What is Annuity?
An annuity is a contract that liquidates estate to provide money at old age. It is a type of investment that involves a large amount of money. If you invest your money in it, then after a certain age, you will receive a specific amount of money each month throughout the year. This might continue for a fixed time, or it can be for a lifetime, depending on the clause of the contract.
An annuity does not secure financial condition after death. Rather the annuity payment will stop when the annuitant dies. It does not cover any type of risk. It rather works as a pension. It gives money during the lifetime of the annuitant.
An annuity is provided by various insurance companies. The person who wants to receive annuity money has to make the payment beforehand, and then from the predetermined time that is mentioned in the contract, a regular payment will be received by the person.
What is Life Insurance?
Life insurance is a policy that people take to secure their families’ future. If a family’s main and sole earner dies suddenly and if that person obtains insurance, then his/her family members will get a certain amount of money.
Life insurance policies have many divisions and types. People can choose from those types according to their needs and preferences. The policies are divided based on the value of protection and length of coverage. Different policies fulfill different necessities.
Life insurance is not applicable during the beneficiary’s lifespan. It starts when the beneficiary’s breath stops. You can save your most close family members’ future. After the death of the beneficiary, the family members will get the fixed amount and use it the way they need. To get life insurance, you need to contact an insurance company and pay a monthly premium for life insurance as the plan requires.
Main Differences Between Annuity and Life Insurance
- An annuity is a kind of contract, whereas life insurance is a policy.
- An annuity offers you benefit while you are alive, but life insurance offers your family members benefits after your death.
- An annuity is a contract that offers to give you money while you stay alive but are too old to work and acquire an income. On the other hand, life insurance offers to provide your dependents family members with financial security after your premature accidental death.
- The contract annuity liquidates an estate, whereas life insurance generates an estate.
- People who are too old and not able to work anymore can take benefit of this contract to survive till they are alive. And people who want to secure their families’ future in case they die accidentally take this policy to ensure the financial safety of the family.
As it is clear from the information mentioned above that annuity and life insurance are not rivals of each other. Rather they are completely different and have totally different functions to perform. An annuity is like the support of your old age, whereas life insurance is there when you are not alive and hence can not provide for your family.
An annuity offers money regularly when you are alive, while life insurance offers money only after your death. Life insurance focuses on the well-being of your family after your death. Both share one similarity that they both exist to secure the future. One makes sure you stay alive with financial security, and the other assures you to provide financial security to your family.