If you are drafting your long-term financial plan, you should definitely consider both annuities and life insurance. And to help you simplify your task, we have done a side-by-side comparison between annuities and life insurance.
Like annuities, life insurance pays out a death benefit to your loved ones in the event of your death. However, that is the only similarity between them. If your life insurance premium is $50, for example, the life insurance company will pay your family the value of your policy which could run into thousands of dollars. On the other hand, if you pay the same amount into an annuity, your loved ones will only get $50 in addition to any interest it has generated.
Both annuity and life insurance have the option of cash value. On the one hand, you cannot borrow from your annuity, while on the other hand, you can get a loan from your life insurance policy. In addition, your life insurance cash value can be used as collateral. And if you like, you can pay interest on the loan or allow your life insurance to pay it by borrowing the rest of the cash value.
There are tax benefits that apply to both annuity and life insurance. For life insurance, your dependents will receive the proceeds of your policy tax-free. In the case of annuity, however, your beneficiaries will pay taxes on the interest generated by your money. Also, if you cancel your annuity before age 60, you will pay taxes and your interest will attract a 10% penalty. While if you cancel your life insurance policy, it is only your interest that will be taxed.