Simplifying Life Insurance in India
Difference Between Life Insurance and Annuity Explained
Are you confused between annuity plans and life insurance plans?
Both these plans offer several advantages to policyholders. However, to select the most appropriate plan, it is essential to know the difference between annuity and life insurance policies. This will help you to make the right decision. Before proceeding, it is also essential to have a clear idea about each.
What Is a Life Insurance Policy?
This is a contract between an insurance provider and a policyholder that guarantees a sum assured to a nominee in case of the demise of the policyholder. Some of these plans only offer protection, whereas others offer both protection and investment options.
The different types of life insurance plans are as follows:
- Term insurance plans
- Endowment insurance plans
- Unit-linked insurance plans
- Whole life insurance plans
- Child insurance plans
- Money-back insurance plans
What Is Annuity Policy?
This is a contract between an insurance provider and policyholder where the buyer has to pay the price as premiums or together as a lump sum. However, the plan is not linked to money markets, and hence the risk associated is low. Moreover, it acts as a source of income throughout your life and offers you the flexibility to choose the frequency of payout.
The different types of annuity plans are as follows:
- Fixed annuity plans
- Deferred annuity plans
- Immediate annuity plans
- Variable annuity plans
What is the Difference Between Annuity Plan and Life Insurance Plan?
|
Criteria |
Annuity Plans |
Life Insurance Plans |
|
Definition |
Long-term investment plan offering fixed returns |
Offers financial protection to a nominee in case of a policyholder's death |
|
Objective |
Acts as the legacy policy only if there is an unused amount |
Acts as a legacy policy |
|
Coverage |
Covers life as well as income |
Covers the life of the insured |
|
Payouts |
Throughout life |
Only after the death of the insured |
|
Types |
Immediate annuity, variable annuity, fixed annuity, and deferred annuity. |
Term insurance, whole life insurance, ULIP, Endowment plans, Child insurance plans, and Money back insurance plans |
|
Tax Benefits |
Not Available |
Available |
|
Death Benefits |
It is available as an optional rider |
It is usually the basic plan |
|
Interest Rates |
Higher than life insurance plans |
Lower than annuity plans |
|
Premiums |
Calculated based on life expectancy |
Calculated based on current health and lifestyle |
|
Payment Amount |
Usually fixed and determined at the time of purchase of the policy |
Varies with premiums |
|
Who Can Raise a Claim |
Policy holder |
Nominee |
FAQs About Annuity Vs Life Insurance
Is annuity income taxable?
What should I consider while selecting the right life insurance policy?
Below are some crucial things that you should consider to select the most appropriate plan for you:
- Consider the financial goals that you have set for yourself.
- Analyse your current income to select the most affordable plan.
- Assess your family’s current and future lifestyle to decide the right coverage amount.
- Check the availability of rides that you can add to your plan for maximum benefit.
- Keep in mind the existing liabilities while selecting the right plan.
Which is the most affordable life insurance plan?
Other Important Features of Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
