Top pick: Ladder
- Apply online and get a decision instantly
- Up to $8 million in coverage
- Term life policies from 10 to 30 years
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Updated . What changed?
When a policyholder passes away, their loved ones receive a payout known as a death benefit. The beneficiaries can choose how they want the payment to be dispersed. They can get a lump sum or have it split up into increments — or annuities. These annuities offer a source of income for a set period of time, but they can be complex.
A life insurance annuity pays out your policy to your beneficiaries in increments rather than a lump sum. It’s designed to provide your loved ones with a steady stream of income when you’re gone.
Your beneficiaries are guaranteed to get a specific amount of money monthly, quarterly or biannually until the annuity expires. The amount is made up of your payment, plus interest — and that interest accrues at different rates depending on the type of annuity you have.
If you want the proceeds of your life insurance policy to be paid out in annuities, these are the options:
You can then choose a payment structure:
As a beneficiary, you might opt to receive your payout in annuities if:
It’s important to understand how your annuity is structured in case of your death. Work with the insurance company you’re considering to find out your options and choose what’s best for your loved ones.
A lump-sum payment is a single payout, as opposed to an annuity that pays out slowly over time.
Life insurance and annuities share some similar features, but they each play different roles in financial planning. Annuities are contracts and designed to be paid out while you’re still alive, and life insurance provides money to your loved ones when you die.
Here are a few major differences between annuities vs life insurance:
|Life insurance annuity||Life insurance|
|Is there a death benefit?||The death benefit of the life insurance policy will be paid out in installments, rather than a lump sum||Yes — equal to the coverage amount or face value of your policy|
|Can it be built up as savings?||Yes||Permanent policies have a savings component, but term policies don’t|
|Are there tax benefits?||Taxed as income upon payout||Yes — the death benefit is paid out tax-free, unless your property is subject to estate taxes|
Many major life insurance companies can pay death benefits in installments. When you’re comparing insurers, ask about the various payment options. And if they do offer annuities, how the payments can be structured.
Annuity costs can be difficult to determine because the level of annual income you receive is based on investment costs, risk, profit for the annuity provider and the various administrative and marketing costs.
Providers will promise a certain return on your money, and this promise of return is calculated after taking costs into account. This means you won’t generally be paying for annuity costs right out of your income payments.
You’ll be paid the promised return on your money regardless of whether the provider makes more or less than what they promise to you. Different providers will offer up annuities with different cost structures.
A life insurance annuity is a contract that pays out a policy in increments — which can be helpful for beneficiaries who need to restrain their spending or are looking to supplement their retirement income.
When you’re purchasing a policy, be sure to compare life insurance companies to get the best possible deal.
The first Americans who put their mortgage into forbearance in 2020 may be just a few months away from the end of that relief. Here’s what you need to know if you’re one of them.
Save money by targeting your coverage to your largest debts.
Learn which states are making it easier for you to get workers compensation if you get sick from the coronavirus and which jobs qualify.
Plus, 2 you can’t.
Finder analyzes the easiest and hardest states to get disability in America, rating the top 5 best and worst states for disability approval.
Smart strategies that homeowners can use to get rid of Private Mortgage Insurance (PMI).
A new change to the tax code quietly went into effect on January 1, lowering the minimum interest rate for permanent life insurance policies.
A permanent life insurance policy’s cash value can be used as a retirement income supplement, though using it reduces your policy’s death benefit.
You might be able to apply for more funding on your PPP loan, get a second PPP loan or take advantage of a new grant program.
Getting a policy can be complicated, but it offers protection for you and your employees.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.