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Annuities

Annuity plans are designed to provide retirement income to the plan owner if he lives beyond the expected lifespan. Annuities provide tax-deferred savings for retirement income. While the annuity does have a death benefit to beneficiaries, it is not tax-free. Annuities are generally referred to as deferred, immediate or longevity annuity plans.

Deferred Annuity: The deferred annuity is just as it sounds. The income is deferred after premiums are paid until a later date, perhaps several years. Deferred annuities are further broken down into fixed (traditional, Fixed Indexed (FIA) and the Variable annuity. The main differences in the types of deferred annuity plans are in how the interest is earned and whether the individual is looking to make a safe investment or are looking for market-like returns with greater accumulation value potential.
Immediate Annuity: The immediate annuity pays benefits starting no later than one year after you have paid your premium to the insurance company. Most immediate annuities are purchased with a one-time, lump-sum payment and are designed to begin paying out no later than one year after the premium has been paid. This annuity plan is designed for people looking to a guaranteed income for life.
Longevity Annuity: A longevity annuity plan is a type of fixed-income annuity which can be issued at any age with income deferred up to 45 years. Typically, plans of this type do not plan out until the holder is 80 years of age or older. Think of it as a supplemental pension plan that can kick in once your regular retirement plan may be declining in its payout or have stopped altogether.
Which Plan Is Better?
The key in determining which plan is right for you — annuity or life insurance — is to look at your purpose. If your main purpose is to help your dependents and other beneficiaries pay for your final expenses, bills and have remaining money left to live on, your best bet is life insurance since this is passed on tax-free to your beneficiaries.

On the other hand, if you are looking for a plan that offers you a retirement income then you should be considering annuities. The annuity offers tax-deferred savings and retirement income. Simply put — life insurance protects your loved ones if you die prematurely while the annuity protects your income if you live longer than expected.

Both plans do provide death benefits but each is a very different option with different purposes. If you need guidance in deciding if a life insurance plan or annuity is right for you, consult a life insurance or annuity planning consultant to discuss all the options.