Difference Between Life Insurance and Annuity (With Table)

Life insurance and Annuity are very important for a long-term financial plan. These two plans have death benefits, but both are meant for a different purpose. Life insurance gives benefits to beneficiaries in case the holder dies early. An annuity is basically what regulates the income for the holder. An annuity protects the assets after the holder dies.

Life Insurance vs Annuity

The difference between Life Insurance and Annuity is Life Insurance regulates the income and grows the money over time depending on the policy. Annuity distributes your income in various funds and gives benefits to the holder. Life insurance gives money after the holder has died, but an Annuity depends on the kind of policy whether it will give financial benefit after the death of the holder.

Life insurance is a contract. This contract is between the policyholder and the insurer, where the insurer guarantees to pay a sum of money after the death of the holder to the family. The policyholder has to pay an amount regularly or an amount, however. This amount is referred to as a premium that has to be paid by the policyholder.

An annuity is an income that is paid at equal intervals. This distributes money in the various fund at a periodic schedule. This policy does not hold the death benefit depending on the policy the holder has taken. An annuity, in simpler terms, is the money in the respective holder’s savings account which can do done weekly, monthly, yearly, or at a regular period.

Comparison Table Between Life Insurance and Annuity

Parameters of ComparisonLife InsuranceAnnuity
PolicyGrows over timeDistributed under various funds
Income regulatedBeneficiariesHolder
Payment After the death of the policyholderA payment seize after death
Depends on Mortality of insuredLife expectancy
Death benefitYesOptional
Future assetEstate creationEstate liquidates

What is Life Insurance?

Life insurance is a long-term benefit. This is a contract between the policyholder and the insurer. This contract covers financial benefits for the policyholder and the holder’s family. It pays money after the death of the policyholder. The policyholders have to pay premiums in regular intervals.

The premium is the amount that the policyholder pays to the insurance company. The policy might get mature after some time, and in this case, the insurance company pays the full amount to the policyholder or the family after a certain time. The policies are available in different types.

Life insurance protects the family in case if the policyholder is the only earning person. Life insurance saves the family from going through financial constraints. Financial constraint is the biggest problem after the policyholder dies, as there is a loss of steady income. The family still has protection due to life insurance.

Life insurance has tax benefits. This is beneficial as this policy provides life holder to the policyholder. The life insurance pays the premium back as a lump sum amount to the family of the policyholder. This gives support to the family to pay off any kind of debt.

What is Annuity?

This is a method of paying money at equal intervals. A savings account is the best example of an Annuity. These are classified according to the payments made in these accounts. Payments can be done monthly or weekly, or yearly. They are calculated by using annuity functions. Annuity functions calculate the annuity which is paid in equal intervals.

An annuity is of two categories like immediate and due. Annuity immediate is the amount that is paid at the ned of payment. This lets the interest accrues between the first payment and the issue of the annuity. The annuity end is done in the initial payment periods. Payment is immediately made.

There are many variabilities of payments. There are fixed annuities that are done with fixed payments. The companies that offer insurance give a fixed return with the initial investment. In this case, securities and exchange commissions do not regulate the fixed annuities. A deferred annuity pays the person after the person’s retirement.

Variable annuities allow the person to make direct investments. The person can make an investment in any fund which are created following the variable annuities. These are registered products. The securities and exchange commission regulates these registered products. The insurance company gives death benefits to the person.

Main Differences Between Life Insurance and Annuity

  1. Life insurance keeps on growing over time depending on the policy, but an Annuity distributes funds on a periodic schedule.
  2. Life insurance regulates income for beneficiaries after the holder dies, but Annuity regulates income for the holder.
  3. Life insurance gives payment after the death of the holder, but an Annuity is when payment seizes after death.
  4. Life insurance depends on the mortality of the insured but Annuity depends on life expectancy.
  5. Life insurance is a death benefit, but an Annuity is optional for the death benefit.
  6. Life insurance creates an estate, but an Annuity liquidates an estate.

Conclusion

This contract covers financial benefits for the policyholder and the holder’s family. Life insurance regulates income for beneficiaries after the holder dies. The policy might get mature after some time, and in this case, the insurance company pays the full amount to the policyholder or the family after a certain time.

Financial constraint is the biggest problem after the policyholder dies, as there is a loss of steady income. Life insurance creates an estate, but an Annuity liquidates an estate. The life insurance pays the premium back as a lump sum amount to the family of the policyholder. Life insurance is the death benefit.

Payments can be done monthly or weekly, or yearly. They are calculated by using annuity functions. These are registered products. The securities and exchange commission regulates these registered products. Annuity distributes funds on a periodic schedule. Variable annuities allow the person to make direct investments. These are registered products.

The securities and exchange commission regulates these registered products. The insurance company gives death benefits to the person. Life insurance regulates income for beneficiaries after the holder dies, but Annuity regulates income for the holder. Annuity immediate is the amount that is paid at the ned of payment.

References

  1. https://www.jstor.org/stable/1806856
  2. https://www.jstor.org/stable/253744
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