What is the difference between Life Insurance and Annuity Plans?

Financial security can ensure a peaceful and happy future. It can help relieve you from unexpected emergencies and accomplish major money goals satisfactorily. Different types of instruments provide varied features and financial benefits. Therefore, it is important to be aware of such instruments, understand their features, evaluate their pros and cons, and choose the most affordable product to help accomplish your financial commitments on time.

Life insurance and annuity plans are two different products with varied features. Here are a few pointers to establish their differences to help you choose amongst them for your financial advantage.

Before starting with the difference between insurance and annuity, let us understand what life insurance and annuity plans mean.

What is a Life Insurance Plan?

A life insurance plan is an agreement between you and an insurance provider wherein your nominee gets a lump sum death benefit in case of your unexpected demise during the policy term. You can customise the life insurance plan to your advantage by choosing varied premium payment and payout options.

Insurers also provide comprehensive life insurance plans that combine the benefits of life insurance, savings, and investment solutions.

What is an Annuity Plan?

An annuity plan is a retirement policy that provides a regular income for a defined income period after your retirement. Generally, a retirement policy has two different phases: the accumulation and the annuity.

During the accumulation phase, you can accumulate a certain fund for the entire policy tenure at regular intervals of time. At the end of the accumulation phase, you can purchase an annuity plan to ensure a regular income for the defined period.

You can either purchase the immediate pension plan that starts providing the regular income immediately after you purchase the annuity plan or the deferred annuity plan that starts providing the regular income at a later date.

Insurers also provide the life insurance retirement plan that combines the benefit of life insurance and retirement and also provides optional annuity solutions. For example, when you purchase our Tata AIA retirement policy, you can choose between the immediate and the deferred annuity options by paying your lump-sum retirement corpus.

Having understood the meaning of life insurance and annuity plans, let us differentiate them based on their features and advantages.

Difference Between Life Insurance And Annuity Plans

Life Insurance	Annuity Plans
Life insurance plans help protect your loved ones financially in your absence.	Annuity plans provide a regular income for your financial needs after retirement.
The payout benefit cannot be deferred to a later date.	The annuity payout can be deferred later based on the requirements.
Life insurance plans can combine savings and investment solutions. You can get returns as a regular income for a defined period when the policy matures.	A retirement policy with the annuity benefit can combine a life cover based on the policy terms and conditions.
The premium paid for and the payouts from life insurance plans will qualify for a tax* deduction and exemption benefit.	The premium paid for the annuity plans provided by insurance providers qualifies for the tax* deduction benefit. However, the payouts from annuity pension plans are taxable.
The death benefit is the primary objective of the life insurance plan.	The death benefit is optional in the annuity retirement policy.
The payout benefit will ensure a lump sum benefit to your loved ones to accomplish their financial objectives or clear off debts after your unexpected death.	The regular income will suffice for your financial requirements after retirement until death.

Life Insurance Or Annuity, Which Is Best For You?

The purchase of the financial product should depend on your steady flow of income and family financial commitments.

If you are the sole earning member and have increased financial commitments at different stages in your life, then a life insurance plan will be an ideal solution. It provides a payout that can satisfy your family's needs in your absence, such as clearing off debts, paying for your child's higher education, etc. In addition, you can combine the benefit of savings and investments with your life insurance plan to enhance the financial benefits.

If you have a well-settled family wherein your children and parents live independently without your financial support, then you just need to plan for your retirement. In such cases, a retirement policy with the deferred or the immediate life annuity plan options based on your affordability will suit your financial needs.

It will help you manage your routine expenses and any other medical emergency if planned adequately. As the extent of regular income for the retirement policy can be decided during policy inception, you can calculate the financial requirement based on the needs accounting for the inflation rate to be more precise, and invest in it accordingly.

Conclusion

Life insurance and annuity plans serve different financial objectives. While life insurance plans secure your family in case of your unexpected death in the future, annuity plans will provide a regular income after your retirement until death. Life insurance retirement plans combine the benefits of life cover and annuity solutions.

Planning for retirement is important to satisfy future financial needs and live the rest of your life peacefully. Retirement plans can help you accomplish your future money goals, pay for your routine expenses, and live in harmony when the planning is done at the right time. However, choosing the right retirement policies and staying invested is important to benefit maximally in the long term. Therefore, analyse well and make well-informed decisions!

L&C/Advt/2022/Jul/1576