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Life Insurance vs. Annuity Death Benefits
The death benefit paid by a life insurance policy and a death benefit from an annuity will affect your beneficiaries differently. Learn more about each type of plan and find out why buying a term life insurance policy may be the right fit for you.
Life Insurance Policy vs. Annuity Plan
Life insurance policies and annuities are two options that you can take into consideration in your financial planning. The essential difference between the two is:
- You buy a life insurance policy to provide protection for your spouse, children, parents or businesses partners if you should die prematurely.
- You buy an annuity to provide yourself with income if you outlive your savings and investments.
Life insurance death benefits are paid to your beneficiary(ies) when you die. This is based on an agreement made with a life insurance company and is contingent upon the regular premiums being paid.
Death Benefit Differences for Beneficiaries
An annuity policy is used primarily as a form of savings and income assurance for the person buying the policy. However, with life insurance policies, your named beneficiaries will receive your cash death benefit when you pass away. The death benefit will not be subject to income tax (unless there are any interest gains included).
When you pass away, the death benefit your loved ones receive will be the face value of the policy. This means that if you pay $500 premiums for a $100,000 term life insurance policy, your death benefit will be $100,000. If you had invested $500 in an annuity, your death benefit would only be $500 plus any interest that had accumulated.
Term Life Insurance and Whole Life Plans
The two primary types of life insurance policies are term life insurance and whole life insurance. Term life insurance provides coverage for a set period of time such as five, 10 or 30 years. Whole life insurance plans provide coverage for the rest of your life as long as premiums are paid.
If you want to help protect the financial stability of your loved ones who depend on your income and contributions for their well-being, you may want to consider ife insurance options as opposed to an annuity. Connect with a licensed insurance agent to learn more about life insurance death benefits.
Speak with a licensed agent at 800-966-7169 or request a free policy quote online.