What Is the Difference Between an Annuity and Life Insurance?

Annuities and life insurance are both excellent investments, but that is where the similarities end. There are many differences between annuities and life insurance. In fact, they are completely different investment vehicles.

Liquidating an Estate

An annuity liquidates an estate by investing money that would be left in an estate to pay the annuitant during his life, thereby removing the possibility of the invested money being left to the annuitant's estate after his death. The remainder in an annuity is forfeited to the insurance company after the death of the annuitant.

Creating an Estate

Life insurance creates an estate by paying out after the death of the insured. Benefits are left to the named beneficiary or, in the event there is no surviving beneficiary, to the insured's estate, thereby creating an estate where otherwise there may be none.

Term Option

Both an annuity and life insurance can be purchased as a term contract.

Length of Contract

Term life insurance provides coverage for a set number of years. A term annuity pays the beneficiary for a set number of years. Five, 10, and 20 years are common lengths of contract for both term life insurance and term annuities.

Cash Values

Whole life insurance provides cash values and policy loans that the policy holder can utilize during the life of the policy.

Regular Payments

Annuities provide regular payments to the beneficiary for the life of the contract.

References

• State Farm: Life Insurance and Annuities
• Annuity Library: Compare Annuity vs. Life Insurance