Difference Between Life Insurance and Annuity Explained

What Is a Life Insurance Policy?

What Is Annuity Policy?

What is the Difference Between Annuity Plan and Life Insurance Plan?

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

Nominee

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? up-arrow

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? up-arrow

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 rides that 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? up-arrow

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.