Life Insurance and Annuities

Life insurance and annuities are fundamental investment vehicles that exist for the investor and his or her family. Both provide a level of security either in case of death or retirement (not that those two are similar events), and thus, would add to the depth and diversity of one’s investment portfolio. Various forms of life insurance can be purchased for future payment in the case of accidental death or illness; in addition several annuities exist for the investor.

There are several categories of life insurance payment, including whole life, universal life and variable life insurance policies which can be purchased. For example, term life insurance can provide a benefit in case of death and illness and exist for a specific period of time, but does not accumulate cash value. With term life insurance, the party or parties that are involved with policy need to be aware of the “face amount” or the protection or death benefit the policy gives. In addition, the policy should know how much would be paid out (otherwise known as premiums), and how much would be paid in case of death. Life insurance ultimately provides a level of security for a loved in case of extreme illness, or death by providing funds that could replace future earnings, debts, or funeral and medical expenses.

Annuities, on the other hand, are also contracts between the purchaser and an insurance company, but they are used in an entirely different way – for income streams that is accepted immediately or deferred for a later date. The funds in those accounts are allowed to grow and accumulate assets without a visit from the tax man every year. This tax deferred growth can be an aggressive approach to prepare for retirement and significantly grow funds. The ability to place money in an annuity provides a safe place for investors to accumulate a significant cash value for that investment and a future payout after turning 59.5 years of age or older. Generally, life insurance policies do not accumulate a cash value at the end of their term.

An investor can purchase any variety of annuity contracts for a future pay out, during which time he will have to pay the taxed on the growth of those tax deferred accounts. The contract purchased would depend on several factors that may benefit the investor, including his or her, the amount purchased, the type of risk or growth being sought. Annuities are also contracts that are allowed to grow with not tax obligation until the first withdrawal is made. . Annuities in general allow for a predictable stream of income through a specific period of time. Variable annuities fall into a general category of annuities with others offering varying features for the investor. Fixed and indexed annuities also exist.

Annuities are contracts purchased for the promise of a future payment and are usually backed by insurance companies. Each type of annuity has its own positive characteristics and features that may or may not appeal to an investor. Variable annuities offer a unique feature from the others, which allow the investor to choose a beneficiary for their account in the unfortunate possibility that they may die before collecting any benefits.Both annuities and life insurance are essential to anyone’s portfolio to protect one’s family in case of death or prepare for retirement.