Simplifying Life Insurance in India

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Digit Life Insurance

Guaranteed* Savings Plan

Difference Between Life Insurance and Annuity Explained

Are you confused between annuity plans and life insurance plans?

Both these plans offer several advantages to policyholders. However, to select the most appropriate plan, it is essential to know the difference between annuity and life insurance policies. This will help you to make the right decision. Before proceeding, it is also essential to have a clear idea about each.

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What Is a Life Insurance Policy?

This is a contract between an insurance provider and a policyholder that guarantees a sum assured to a nominee in case of the demise of the policyholder. Some of these plans only offer protection, whereas others offer both protection and investment options.

The different types of life insurance plans are as follows:

What Is Annuity Policy?

This is a contract between an insurance provider and policyholder where the buyer has to pay the price as premiums or together as a lump sum. However, the plan is not linked to money markets, and hence the risk associated is low. Moreover, it acts as a source of income throughout your life and offers you the flexibility to choose the frequency of payout.

The different types of annuity plans are as follows:

Fixed annuity plans
Deferred annuity plans
Immediate annuity plans
Variable annuity plans

Difference Between Life Insurance vs Annuity

Criteria	Annuity Plans	Life Insurance Plans
Definition	Long-term investment plan offering fixed returns	Offers financial protection to a nominee in case of a policyholder's death
Objective	Acts as the legacy policy only if there is an unused amount	Acts as a legacy policy
Coverage	Covers life as well as income	Covers the life of the insured
Payouts	Throughout life	Only after the death of the insured
Types	Immediate annuity, variable annuity, fixed annuity, and deferred annuity.	Term insurance, whole life insurance, ULIP, Endowment plans, Child insurance plans, and Money back insurance plans
Tax Benefits	Not Available	Available
Death Benefits	It is available as an optional rider	It is usually the basic plan
Interest Rates	Higher than life insurance plans	Lower than annuity plans
Premiums	Calculated based on life expectancy	Calculated based on current health and lifestyle
Payment Amount	Usually fixed and determined at the time of purchase of the policy	Varies with premiums
Who Can Raise a Claim	Policy holder	Nomin

In addition to the differences between annuity vs life insurance policies, you must also be aware of the advantages that each provides.

FAQs About Annuity Vs Life Insurance

Is annuity income taxable?

Yes, you will have to pay tax on the money that you are receiving from the annuity plan. This is somewhat similar to the tax that you usually pay on your regular source of income.

What should I consider while selecting the right life insurance policy?

Below are some crucial things that you should consider to select the most appropriate plan for you:

Consider the financial goals that you have set for yourself.
Analyse your current income to select the most affordable plan.
Assess your family’s current and future lifestyle to decide the right coverage amount.
Check the availability of riders you can add to your plan for maximum benefit.
Keep in mind the existing liabilities while selecting the right plan.

Which is the most affordable life insurance plan?

Term life insurance plan is the most affordable one. This is mainly because it offers coverage only for a fixed number of years and has no cash value.

Other Important Features of Life Insurance

Assignment in Life Insurance

Benefits of Life Insurance

Types of Riders in Life Insurance

Life Insurance Policy Payout

Zero GST on Life Insurance Premiums

Paid Up Life Insurance Policy

Beneficiary in Life Insurance

Terminal Illness Rider in Insurance

How To Choose Life Insurance

Critical Illness vs Disability Insurance

Nominee in Life Insurance Policy