Claire Smith Last Updated On: June 27, 2023

What Is A Life Insurance Annuity?

Annuity plans provide you with a cushy retirement income should you live beyond the end of your life insurance plan policy. For instance, if your life insurance policy ends when you’re 60, and you live beyond 60, a life insurance annuity can be a solid source of tax-deferred savings. 

With life insurance, you pay smaller premiums monthly and the payout happens after you pass and it benefits your beneficiaries. But with annuities, you pay one, larger amount upfront to your insurance company and the company will give you set monthly payments as long as you live. So, you see the perks of this plan.

And there is a death benefit for beneficiaries with annuities—it’s just not tax-free. 

Life Insurance Annuity Provides Coverage and Retirement Income - Is It Right for You?

Life insurance annuity can be one of the most convoluted concepts in the already confusing world of insurance—but we’re about to make it easier to understand. 

Simply put, traditional whole life insurance gives your beneficiaries money if you die and annuities provide you with money if you live beyond the terms of your life insurance policy. So, one option financially benefits other people after you’re gone and the other option mainly benefits you, in this life. 

There are benefits to both types of policies, as well as drawbacks. One will always outweigh the other, depending on who you are and what you want from your life insurance. So, with this in mind, let’s dive deeper into life insurance annuity to help you decide if this type of coverage is right for you. 

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Types of Annuity Life Insurance

There are three types of annuity life insurance: immediate, deferred, or longevity plans.

Let’s take a look at them. 

  • Immediate. While not exactly immediate, this sort of annuity plan starts to pay out no later than a year after you’ve paid that one, large premium payment to your life insurance company. Immediate annuity life insurance is ideal for someone looking for guaranteed income for life. 
  • Deferred. Deferred annuity life insurance starts paying out several years after your premium payment. Within this categorization, there are a few subcategories: traditional, fixed indexed, and variable.
    The differences between these types of annuities have to do with your risk-aversion. Variable policies will give you returns based on the flex of the market, and are therefore not as predictable, whereas a fixed index doesn’t have the same growth potential but also doesn’t have the same inherent risk.  Traditional investments fall somewhere between these two extremes. 
  • Longevity. Since these annuity plans won’t often kick in for 45 years (often, around when you’re 80), it’s best to think of longevity plans as providing funds to supplement your pension, which may be exactly what you need if your retirement income is starting to dry up.

Annuity vs. Whole Life Insurance

We’ve already touched on a few of the key differences between annuity vs. whole life insurances, but it bears reviewing them and expanding, just so you get the complete picture and can make the best choice possible. 

Annuity Life Insurance Whole Life Insurance
Reason to buy it Provide income for you after you retire, so you don't outlive your income Provide income for dependents after you die
Pays out Typically monthly, one year after you buy the annuity (if immediate) or whenever the deferred period is over When you die
How it pays out In a single sum or income--depends on the type of annuity you choose. In a single sum
When to buy it 40s to late 70s 20s to 60s
Taxable Yes No
Is there a death benefit Yes Yes
You can get (almost) immediately and benefits you, in this life Pays your beneficiaries after you die
It is paid for in one, large premium payment, and then pays out monthly as long as you live It is paid for in smaller, monthly payments and runs until the end of your policy—not necessarily the end of your life
It is most often acquired mid-life or close to retirement (depending on the kind of policy you get) It is most often acquired in your twenties or thirties when you have young dependents and/or more debts

Benefits of Annuities

  • Diversify your investments. Sure, annuities may earn a lower rate of return than other investments, but if you get a fixed-rate plan, your income investment will be stable.
  • You don’t have debts/expenses. Not everyone has debt and expenses—or maybe you have final expense insurance for that. If that’s the case, then annuities are a good option.
  • Your death benefit beneficiary will benefit from smaller payments. If for whatever reason, a large lump-sum payment may be too overwhelming for your death benefit beneficiary, then an annuity is a reasonable solution, since it makes incremental payments.
  • You get to benefit from the annuity when you’re alive. Especially for someone with no debts or dependents who may rely on a death benefit, an annuity allows you to reap the rewards of the fruits of your investment while you’re here to enjoy them.

Disadvantages of Annuities

The main disadvantages of annuities revolve around their timing. 
  • Payment isn’t made quickly. In fact, because it can take decades to receive your full annuity payment, you could die before you see the full return on your investment.
  • It costs to withdraw the money. With traditional investments, you can withdraw from your principal. While you can also do this with annuities, you’ll be dinged with a hefty early withdrawal fee. 
  • Fees and taxes. Annuities have fees, unlike many other investment models, and this will cut into your returns. What’s more, interest earned on your annuity is taxable. So, from an investment perspective, annuities may not be the best option.

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How Much Does Life Insurance With Annuity Cost?

That depends on how much you want it to pay out. Annuity plans typically range from $50,000 upwards of $300,000. The payout per month likewise depends, but to give you an idea, a 65-year old man who invests $100,000 in an annuity would receive around $494 per month. 

To get a better idea of which life insurance with an annuity policy is best for you, request a free quote. We’ve done our homework, sourcing dozens of the best annuity insurance providers and will match you with the ideal provider for you. Get a quote now. 

When to Get an Annuity Life Insurance Policy ?

Investment experts generally recommend getting an annuity as early as 50 years of age and as late as 75, but ultimately, it depends on your unique circumstances. 

The purpose of an annuity, remember, is to maintain a source of income, so the best time for many is around the time you’re going to retire—depending on what kind of annuity investment you are opting for (variable, fixed, or traditional) and if you’re getting an immediate, deferred or longevity annuity. If it’s deferred or longevity you will want to get it earlier than you plan to retire, ideally between 40 and 65 years of age. 

Is Life Insurance With Annuity Right for Me?

It could be! You’ve read this far, so you should have a good idea of whether or not life insurance with an annuity is right for you. 

When in doubt, get a quote from us. We’ll match you with your ideal annuity life insurance, and you can get a better idea of the price, as well as whether this form of coverage is a smart investment. 

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That depends on whether you want deferred, longevity, or immediate payouts. If you want immediate, you can start as soon as you retire. If you are going to defer, you can start in your 40s or 50s.
An annuity life insurance plan replaces or subsidises your retirement income with monthly payments and you use this income while you are living, whereas standard life insurance policies pay your beneficiaries when you are dead, and replaces your income for them.


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