Uncomplicating Life Insurance and Annuities

There are some things in life that human beings have made more complicated than they really are, like recipes, advanced math equations, and the differences between life insurance and annuities.

As an example, let’s start with a recipe for Croque Monsieur. It generally includes sliced ham and cheese in bread coated with an egg wash, then baked or fried like French toast. The name itself translates to “crunch sir” because of the buttery crunchy outside. The name alone might sound daunting to many – except a friend who’s a foodie – but it’s still a ham and cheese sandwich.

Another example: advanced math calculations. You probably don’t need to use it in your daily life unless you’re an engineer or physicist. However, you probably do a good job of creating and following a budget and saving for a big expense. You don’t need complicated, advanced math to run your household.

What many people might like a little help with is understanding the differences between life insurance and annuities. This is where an experienced agent from AAA Life Insurance Company can be of help. Though AAA Life and its agents do not provide legal or tax advice, they can help you understand how these two different products might benefit you.

Both life insurance and annuities are financial products that can help create a stable financial future, but they do so in different ways.

Most people purchase life insurance for the death benefit. That means if you were to die during the length of your policy, your beneficiaries can receive the death benefit for a covered claim. This helps to ensure that your loved ones are provided with the funds they need in your absence.

Many people purchase life insurance when the financial need is great and access to savings or backup funds is limited.

Keep in mind, there are different types of life insurance, and they can help provide funds to the policyholder’s loved ones upon his or her death. That said, let’s review some of the options a potential policyholder can choose from.

Term life insurance offers coverage for a specific period of time, or “term,” often 10 to 30 years. Whole life insurance is in place throughout the lifetime of the policyholder. This type of insurance is thought of as permanent life insurance because it is designed to provide coverage for the insured's lifetime as long as premiums are paid. Permanent life insurance products include a cash value feature, which has a savings component. Though life insurance is a product, people may borrow from the cash value of it to help start a business or take a trip. Keep in mind, though, that the final death benefit amount would reflect any fees and debt taken out and not yet repaid. Typically, with term and permanent forms of life insurance, beneficiaries generally receive the death benefit tax-free.*

While life insurance is generally intended to help support those you leave behind, Annuities are financial products that are used for retirement planning and income management. This product can be good to use in retirement, so you don’t outlive your income.

There are different types of annuities. Two of them are fixed and variable. Fixed annuities, for example, typically guarantee that you will receive your principal (the money you paid in) and a set amount of interest in predictable payments. The investment options for variable annuities are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three, and do not generally offer the same income guarantees, given market fluctuations. Potentially, they may offer greater gains or losses. In addition, if you choose, you can receive immediate payouts. Some annuities may also include a death benefit that pays out to a beneficiary.

A deferred annuity could help extend a retiree’s monthly income to ensure there’s enough money in their monthly budget to cover necessary payments, as well as a little more so they can make their favorite Croque Monsieur when they like.

This is just a general glimpse at annuities. There are a range of possibilities within them to help you meet your retirement goals. Specifics can vary from contract to contract. When considering an annuity, it’s important to get professional advice about them and how they could help you meet your financial goals.

Both life insurance and annuities offer benefits that can help you and your family on your long-term financial path, but keep in mind that one does not replace the other. An insurance professional can discuss the difference between life insurance and annuities with you. It’s as easy as making an appointment online to learn more or calling an experienced agent at 952-927-2711.

*AAA Life and its agents do not provide legal or tax advice. Therefore, you may wish to consult independent legal, tax, or financial advice prior to the purchase of this policy.