Annuity vs Life Insurance: Which One Do I Need?

I’m in the middle of looking at retirement options and I’m not really sure I understand the difference between annuities and Life Insurance. Which one is the best option for my retirement?

Question asked by Shanice Halsey
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Answered by Alicia Hempsted

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.

An annuity and Life Insurance policy will provide completely different types of cover for you and your loved ones.

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.

This lump sum can be claimed by your loved ones when you die or if you are diagnosed with a terminal illness with 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 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.

If you need some advice on which products you need, feel free to contact us on 📞 01273646484.

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This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
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