The Differences Between Annuities and Life Insurance

As two products being offered by life insurance companies, most people often don't give much thought to what an annuity is compared to what a life insurance is. Life insurance, the more popular of the two mainly because it carries the term "insurance' which is popularly recognized, is often easily understood. On the other hand, an annuity, except for people who are serious about the investment business or are looking for what an annuity offers, is very hard to understand for the common person. However, for people who find the need to know more about life insurance and annuities for any reason whatsoever, finding out the differences between these two famous names is very important.

In many ways, annuities and life insurance are similar. For example, both of them involve three persons or groups of people. These are the investor, the insurance company, and the beneficiary, or beneficiaries, if there are more than one. Their purposes, however, are quite different. Although in the general sense, they are quite similar, too. In essence, both of them are investments. However, life insurance is aimed towards providing money for a person's family after the person's death. This money can cover medical bills, funeral and cemetery charges, leftover debts, and the person's financial responsibilities such as the education of his children and so on. The benefits are given straight to the beneficiaries.

On the other hand, in the case of annuities, they are investments made on a contract that will pay out already even as the person is still alive. An annuity contract can pay out either immediately or at a later specified time that will be decided upon by the annuitant. The main difference is that, the annuitant is the primary receiver of annuity payouts, unlike in life insurance, where the money is really intended for the beneficiaries. In an annuity, the beneficiaries only receive the remainder of the investments in the case of the investor's death while the contract is still in effect.

This gives us a hint of the biggest difference that clearly accentuates the line between the two financial products. On one hand, life insurance benefits mainly the beneficiaries. It ensures that their lives will go on with no financial difficulties even after the policyholder's death. However, for the policyholder himself, the only benefit he'll get out of it is knowing that his earnings are getting invested into an important thing, which is his family's future. On the other hand, however, annuities can benefit both the annuitant and the beneficiaries. The annuitant can arrange for the annuity to provide money for himself in a period he chooses or in the immediate time. However, it also offers benefits for his family, especially the annuity contracts that also includes death benefits for families as well.

Knowing this big difference between annuities and life insurance is very crucial to a person interested in investing for the future. It is important for that person to evaluate what exactly it is that he needs. Is it to insure his family's future even without him, or is it to make sure that his money is divided into enough portions to make it last his whole life and even to fund his retirement. Once the person decides on that, he will know what product he needs - whether it is annuity or life insurance.