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If you want to secure your family’s financial future, you may consider purchasing life insurance or an annuity. However, some questions may remain about which option to choose and what is different in the first place.
This article explains the difference between annuities and life insurance and leaves some practical advice to help you choose the right option for your particular situation.
What is an annuity?
An annuity is a type of contract between the policyholder and the insurance company. There are several types of annuities, all intended to provide a monthly income while the annuity owner is still alive. Annuity costs vary by type and provider.
One of the downsides of annuities is that they are often subject to fees, which can add significantly to your costs. They can also be difficult to get rid of and you may have to pay a hefty surrender fee if you want to end your annuity.
Customers often buy annuities looking for guaranteed payment security. Investing in the traditional stock market offers no guarantees of any kind, which may appear risky to consumers.
Unlike life insurance, annuities are paid only while the owner is still alive. Your pension expires when you die. Consumers worried about running out of retirement savings may buy annuities with guaranteed payments.
“If you expect your costs to be stable and you don’t want to worry about the ups and downs of stocks, an annuity can give you peace of mind.” Marina Wealth Advisors.
What is life insurance?
Life insurance provides death protection to your heirs if you die during the policy period. If you have someone in your life who depends on your income, life insurance can help them survive financially after you are gone. and children, get life insurance.
Some employers offer life insurance as a workplace benefit, but you can also purchase life insurance through a third-party company.
Type of life insurance
There are three main types of life insurance: term life insurance, whole life life insurance and universal life insurance. Understanding how different policies work is important to choosing the best one for you and your family.
term insurance
Term life insurance is granted for a specific period, usually ranging from 10 to 30 years. During that period, you pay the insurance company the same amount every month. If you die during the period, your heirs will receive the full amount.
Monthly premiums for term insurance vary depending on age, gender, health status, and other factors. The older you are, the more you pay.
According to insurance broker PolicyGenius:, the average monthly premium for a 35-year-old man is $30.14 per month for a $500,000 policy over 20 years. The average monthly premium for a 35-year-old woman is $25.43 for a 20-year $500,000 policy.
whole life insurance
Whole life insurance is meant to protect you for the rest of your life. As long as you continue to pay your monthly premiums, the beneficiary will be eligible to receive payments.
Whole life insurance is supposed to last a lifetime, so premiums are much more expensive than term insurance. According to PolicyGenius, if a 35-year-old man has whole life insurance he has $500,000 in insurance, the monthly payment would be $571 for him. This is about 19 times the cost of term insurance.
Many financial experts argue that whole life insurance is unnecessary because most people do not need it for the rest of their lives. If you stop working, your family will no longer rely on your income and may not need compensation if you die.
universal life
Like whole life insurance, universal life insurance lasts a lifetime. However, Universal Life may also have cash value that can be borrowed or withdrawn while you are alive. Cash value can also be used for monthly premium payments, but this is usually only available after several years’ worth of payments have been made.
Cash value is invested in the stock market, but the amount earned is limited by the insurance company. The monthly premium for universal life insurance is Same as whole life premium.
How to choose annuities and life insurance
Before choosing between annuities and life insurance, you need to understand what you are really looking for in these products. Money for your family if you die in the prime of your earnings? Is it a nest for old age?
Determining your motivation is the key to choosing the most appropriate product. If you want to invest in your retirement, a 401(k) or individual retirement account (IRA) may be a better option than an annuity or life insurance.
Using insurance or an annuity as an investment is rarely a good idea. Annuities and life insurance almost always have limits on how much you can earn in a year, which can prevent nest eggs.
“Most of the time, you’re better off using investments for investments and insurance for insurance,” says financial planner Jay Zigmont. child free wealth.
If you want to protect your family financially in case you die, term insurance may be your best option.
As always, you should consult a financial professional when making this type of decision.
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