Annuity vs Life Insurance
  • Difference of Both
  • Reasons to Buy
  • The right one for you
Annuity vs Life Insurance
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Difference Between Annuity and Life Insurance

Annuity plans are basically retirement plans that are offered by life insurance providers. These may be provided by life insurers, but they are not life insurance. Both plans operate very differently from each other and help the policyholder to meet a unique set of goals and objectives. In general, life insurance plans are to safeguard the family's lifestyle and future financially when you're not around.

On the other hand, annuity plans are created to secure your lifestyle and future financially by giving you a stream of income, after you invest a lump sum amount, that you can use to maintain living standards after retirement. The insurance company uses the lump sum amount to invest in market funds and gives you a post retirement income using the returns of the market investments. To make a selection between an annuity and life insurance, simply keep reading the subtopics below.

Basics of Life Insurance and Annuities

Life Insurance and fixed annuities might come from the same place. However, both financial products were created to meet very different needs and operate differently. The only thing these two financial tools have in common is an insurance company pays the payouts associated with these products.

Features Life Insurance Fixed Annuities
Payouts Life Insurance pays the death benefits on the demise of the policyholder. Fixed Annuities pay the pension-like stream of income for a guaranteed period after your retirement.
Beneficiaries With life insurance, you can designate any family members, like kids, spouses, or parents, as a beneficiary so they can claim a death benefit after your unfortunate demise. With an annuity plan, the owner is usually the first beneficiary and can nominate a secondary beneficiary at any stage once the investment has been set up.
Underwriting Under life insurance, you have to apply for coverage. However, to approve your policy, the insurer may look at your finances and assess such things as age, health, income, etc. There's no underwriting required for an annuity. All you need to have is a lump sum amount that you can pay once in a lump sum. The age of entry is 18 years.
Time-frame Life insurance age limits may vary from insurer to insurer and generally fall within the range of 18 to 99 years. There's no specific time to buy an annuity. You can start it at the age of 18 or above whenever you wish to invest.
Premiums Payment Term There are three types of premium payment terms in life insurance: one-time lump sum payments, monthly payouts, and annual payouts. Policyholders have the flexibility to choose the premium payout options based on their comfort. Annuity premiums can be paid in one-time lump sum payments.

Is it Worth Buying Life Insurance and an Annuity?

Undoubtedly, both products have different benefits to fulfill a unique set of plans & needs and operate very differently from each other. One product helps you secure the family's financial future, and the other safeguards you after retirement financially. Moreover, buyers usually prefer to purchase both financial products to build a portfolio of protection.

Here are a few good reasons to buy a fixed annuity or life insurance:

Life Insurance Fixed Annuity
With life insurance, you can secure your family's financial future. It'll give you peace of mind that your dependents won't suffer financially in your absence. Under annuities, you'll receive a stream of income that helps you maintain living standards after retirement.
Life insurance helps your family to pay any outstanding debts if you pass away. This secures them from creditors. When you hold an annuity plan, your income is fixed so, even if the market crashes, your investments will be recovered.
With tax benefits, your nominee can enjoy every penny you leave them for because the death benefits are tax-free under Section 10(10D) of the Income Tax Act 1961. Annuity plans also come with features like additional annuity, Return of Purchase Price, and Joint Life option where you can add your spouse to the plan.

Life Insurance & Annuities: Which One is Right for You?

Undoubtedly, choosing between both financial products may depend on your income, responsibilities, and family financial commitments.

  • Life Insurance

    In case your family is dependent on your income and there are some chances that your financial commitments will be increased in every phase of life, then life insurance will be best for you.
  • Fixed Annuities

    In case you do not have a stream of income after your retirement and you have a lump sum amount that you can invest then you can opt for an annuity plan which will give you a stream of income.


Life insurance and annuity plans serve different purposes of life, and both products are designed to meet very different needs. It's quite simple to choose which is best for you by assessing your responsibilities and family financial commitments. Life insurance provides death benefits to your family in the event of your unfortunate demise, and an annuity plan provides a regular income after your retirement for a guaranteed period.

Annuity vs Life Insurance: FAQ's

1. Is investing in an Annuity plan safe?

Unlike other investment products, fixed annuities are considered to be safe because they provide guaranteed future payments which are decided at the time of the policy purchase.

2. Can I surrender my annuity plan?

In most cases, you may have to pay the penalties for surrendering your annuity contract early, so make sure to go through with the T&Cs of the insurance company.

3. Is an annuity better than life insurance?

It may depend on your income, responsibilities, and family financial commitments. If your family is well-settled and you've no burdens to bear, then the annuity plan is best for you.

4. What happens to an annuity when the owner dies?

Annuity payment will end after the demise of the owner, and the death benefit will be given to the designated beneficiary.

5. Can I pass on an annuity to your spouse?

This option is available in a joint-life policy in which you and your spouse get an income from the plan.

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What Our Customers Have to Say

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Sahil Singh Kathait

Written By: Sahil Singh Kathait

Sahil is a passionate content writer with over two years of expertise in the insurance domain. He uses his knowledge in the field to create engaging content that the customer can relate to and understand. His passion lies in simplifying insurance terminology, ensuring a hassle-free understanding for potential policyholders. With his outstanding collaborative efforts with people, he understands different perspectives and keeps readers' viewpoints at the forefront of his content writing approach.