Annuity vs Life Insurance: Which One Do I Need?

Annuity vs Life Insurance: Which One Do I Need?

Sometimes people mistake annuities and Life Insurance for each other, which is concerning once you realise how very different these products are! Annuities and Life Insurance are effectively the polar opposite of each other.

What’s the Difference Between Annuities and Life Insurance?

A Life Insurance policy will pay out a lump sum to your loved ones after your death or upon diagnosis of a terminal illness. Upon taking out cover, you will need to pay monthly premiums to your insurer throughout the term of your policy until you claim or until the policy’s term ends.

The payout of a Life Insurance policy can be equal to thousands of pounds, with some people insuring themselves for the cost of their mortgage for instance.

This lump sum can be claimed by your loved ones when you die or if you are diagnosed with a terminal illness and are told you have less than 12 months to live.

An annuity on the other hand, is a product that provides you with regular income throughout your retirement. An annuity works in reverse compared to a Life Insurance policy. Taking out an annuity requires you to pay a lump sum upfront in order to receive monthly payments later on.

Buying an annuity requires you to exchange some or all of your current savings in your pension pot for a guaranteed, regular income for the rest of your life. When you die, most types of annuity will stop paying income. This means that if you die early you may not see all of your capital returned. But, if you live longer, you may end up getting more out of your annuity than you put in.

Do I Need an Annuity or a Life Insurance Policy?

An annuity is one option to provide you with a retirement income. From it you will receive regular income that you can use to fund your retirement. A lifetime annuity will continue to pay out until you die, so you don’t have to worry about being without income.

On the other hand, if you would like to leave some money to your loved ones, then you will need a Life Insurance policy.

The lump sum paid out to your family after your death can be used to pay off debts, cover funeral costs, or keep their finances afloat if they relied on your income.