Annuity vs. life insurance: what you should know

What’s the difference between life insurance and annuities? It’s a common question. Life insurance may help provide your loved ones with the financial peace of mind they deserve if you were to pass away. Annuities help provide a tax-deferred way to grow money as well as an income stream. Both may be considered for your long-term financial plan.

While they share some similarities, the overall purpose of each is very different. Let’s take a quick look.

Life insurance helps protect their financial future

When comparing life insurance and annuities, the biggest difference is that life insurance is designed to help protect against a financial loss for others after your death. Annuities, on the other hand, may help protect you financially while you’re still alive.

Life Insurance may help financially secure your loved ones’ future. The death benefit may help with things like replacing your income and meeting important financial needs such as:

• Funeral costs
• Daily living expenses
• Mortgage payments
• College funding

When you purchase life insurance, you aren’t purchasing it for you — it’s really a purchase for the people you want to take care of.

If you want to find the right life insurance for you and your loved ones, contact your agent to learn more about American Family Life Insurance Company's custom options. For more information, you can also read how life insurance works.

Annuities help prepare you for the future

Think of an annuity as a tool that may help meet your retirement needs. The primary purpose of annuities is to create income for you, which may be accomplished in a few different ways. You may be able to set up payments that last your entire life, a specific period or a combination of both.

There are many potential benefits of annuities. Some may include:

• The ability to grow account value on a tax-deferred basis
• The potential for a future income stream that can’t be outlived
• The possibility of a lump sum benefit that can be paid to a surviving spouse

How do annuities work?

You may be able to buy an annuity by giving your insurance company either a single lump sum or making payments over time. The insurance company then invests your money — referred to as a premium or purchase payment — in different ways depending on the type of annuity you select.

You may also be able to buy an annuity that instantly makes payments back to you — called an immediate annuity. Or, if you prefer, you may be able to opt for an annuity that delays making payments to you for an extended period, sometimes many years.

Start planning for the future today

Life insurance and annuities work in tandem to protect a future for yourself and those you care for. Now that you have a high-level overview discuss with your agent how these options fit your needs.

This article is for informational purposes only and based on information that is widely available. This article does not afford, offer, or guarantee any coverage. We do not make any guarantees or promise any results based on this information.

Neither American Family Life Insurance Company nor its agents are authorized to give legal or estate planning advice, and this article should not be construed as such advice. Customers should consult an attorney or estate planner for answers to legal and estate planning questions.

Annuities are long-term insurance contracts intended for retirement planning. Annuities are issued by Protective Life Insurance Company located in Nashville, TN, with administrative offices at 2801 Highway 280 South, Birmingham, AL 35223, through a relationship with American Family Brokerage, Inc., 6000 American Parkway, Madison, WI  53783.