Differences between Annuity and life insurance policies

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The main difference is purpose :  life insurance pays your beneficiaries after you die, while an annuity provides income to you during your lifetime. Life insurance offers a tax-free death benefit to protect loved ones, whereas an annuity provides a stream of income that is taxed as regular income when withdrawn. While life insurance is for providing for your family, an annuity is a retirement-planning tool to prevent outliving your savings.
 

Life Insurance

• Primary Purpose: To provide a financial safety net for your family after your death. 
  
• Payout: Pays a lump-sum death benefit to designated beneficiaries. 
  
• Tax Treatment: Death benefits are generally tax-free. 
  
• Best For: Individuals with dependents, or those wanting to cover final expenses and provide financial security for their loved ones. 
  

Annuity

• Primary Purpose: To provide you with a guaranteed income stream during your retirement. 
  
• Payout: You receive regular payments while you're alive. 
  
• Tax Treatment: Growth is tax-deferred, but the income you receive is taxed as ordinary income. 
  
• Best For: Retirees or those approaching retirement who are worried about outliving their savings. 
  

Can you have both?
Yes, you can own both life insurance and annuity products. This strategy can offer comprehensive financial security by combining the long-term income protection of an annuity with the family protection and wealth transfer of a life insurance policy. 

How to decide:
Your choice between a life insurance policy and an annuity depends on your personal financial goals. 

• If your goal is to provide financial security for your family after your death, life insurance is the clear choice. 
  
• If you want to ensure you have a steady income to live on in retirement and avoid running out of money, an annuity is the better option. 
  
• Consulting a financial advisor can help you determine which product, or combination of both, is right for your specific needs. 

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