What are Life Insurance Annuities?
Introducing Life Insurance Annuities
What are Life Insurance Annuities? You may have heard of annuities before, but what exactly are they? An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments. In return, the insurance company agrees to make periodic payments to you, starting immediately or at some point in the future.
Annuities can be used for different purposes, such as income during retirement or as part of an estate plan. There are different types of annuities, and each has its own features and benefits. One type of annuity is a life insurance annuity. Let’s take a closer look.
What is a life insurance annuity?
A life insurance annuity is a type of annuity that combines features of both life insurance and an annuity. With a life insurance annuity, you make premium payments to the insurer. The insurer then uses those premiums to purchase one or more life insurance policies on your life.
As the policyholder, you are also the beneficiary of the policy. This means that when you die, the death benefit will be paid out to your beneficiaries. But if you live to the maturity date of the policy, you will also receive the accumulated cash value of the policy.
Is an annuity tax-deferred?
The cash value grows tax-deferred, which means you won’t have to pay taxes on it until you withdraw the money. You can take withdrawals from the cash value while you are alive, but doing so will reduce the death benefit that your beneficiaries will receive.
In addition, if you withdraw money from the cash value before age 59½ , you may have to pay a 10% early withdrawal penalty tax in addition to regular income taxes on the amount withdrawn.
It’s important to note that with a life insurance annuity, there is no guarantee that you will get back all of the money that you put in. This is because investment risk is involved —the insurer will invest your premiums in stocks, bonds, and other investments in an effort to grow the cash value.
Life insurance annuities are contracts between an insurance company and an individual. The company agrees to make payments to the individual, usually at regular intervals, in exchange for a lump-sum payment. These payments can be used to provide a steady income stream during retirement or other long-term financial goals.