When first introduced to the two, life insurance and annuities can both seem the same and exact opposites. On the face, it can seem like life insurance protects you if you die too early, and annuities protect you if you live too long. While this is correct, there are some more complex differences between their purposes beyond that.
An excellent way to start is the motivations behind purchasing one another. One way to put it is life insurance “protects you from dying too soon,” and a life annuity “protects you from living too long.” Life insurance protects your dependents if you die, and annuities protect you if you live longer than your retirement funds last.
The main reason for buying life insurance is that if you die with others dependent on the income or finances you bring in or debts that could affect them. With a life insurance plan, you pay premiums for the protection of your inheritance, mortgage, and income towards your family. They would receive these as if you were still living. The payout for your dependents is a single sum upon when you die.
Life annuities are sometimes referred to as longevity insurance. When you purchase your annuity, you are betting on living longer than the money would have lasted you if you would have lived off it. If so, the company will continue to pay you small income streams in the periodic terms you agreed upon. With how long we can live and have no way of knowing our expenses, investors are smart to invest in an annuity to take them in retirement where their 401K, IRA, or Social Security cannot.
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It is beyond important not to go into any of these contracts blindly. You can easily risk more money than it takes to accomplish your investment goals. The money you would be wasting would come from what you can put into retirement, hypothetically what you are saving for in the first place. The idea is to settle on a plan where you invest the smallest amount possible for the most amount of benefits. Texas Insurance Agency, as an independent agency that has the top carriers to leverage, can point you to the right contract for you. Give us a call at (281) 398-1010 to get a start on protecting your family today.