Annuities vs. Life Insurance: Which Financial Tool Is Right for You?

If you're a working mother concerned about your children's future, securing their financial well-being is likely your top priority. Perhaps you want to make sure they have enough funds to continue their education when you are no longer around. Life insurance is likely your best option. Or, you are closing in on retirement, and wondering about finding a steady income stream for the next 30 years. One solution could be an annuity.

Life insurance and annuities work differently, but the need for both has never been greater. About half of American adults have life insurance coverage, yet 42% feel they don't have as much as they need.¹ Meanwhile, 12,000 Americans are reaching age 65 every day and need sources of retirement income.²

What is life insurance and how does it work?

What would happen to your family's daily life if your income were to halt? Life insurance helps ensure your loved ones are provided for and protected. When you purchase a life insurance policy, you pay regular premiums that do not change. In return, the life insurance company offers your beneficiaries a set amount (death benefit) when you pass away.

Planning for your expenses after you're gone will help secure your family's financial future. These funds can help your family pay living expenses, stay in their home, and pay off debts, including final expenses. The death benefit can also help send a child to college or leave a meaningful legacy for future generations.

There are two main life insurance categories to consider:

• Term life insurance covers a specific period, typically 10, 20, or 30 years. It's generally more affordable and focuses purely on providing a death benefit.
• Permanent life insurance, which includes whole life and universal life policies, provides a death benefit for your entire life while building cash value that you can access while living for various financial needs.

Building your retirement income strategy with annuities

Both policies offer death benefits, lifetime coverage and cash value growth, but take different approaches to risk and reward. Using the chart below, let's break down the differences to further guide your selection process.

With people living longer and spending more time with loved ones, outliving your savings is a real possibility; that's where annuities, a powerful retirement planning tool, come in.

Annuities differ from death benefits in that they provide a steady income stream* during your lifetime, particularly in retirement. When you purchase an annuity, you either make a lump-sum payment or contribute money over a period. Income annuities, for example, can help supplement your income through a series of lifetime payments or for a specific timeframe. Deferred annuities, however, delay income payments to a later date, often in retirement, to allow for tax-deferred growth during the deferral period.

* Guarantees are subject to the claims-paying ability of the issuing insurance company.

As pensions become less prevalent, annuities are proving beneficial in helping individuals plan and fund their retirement effectively, offering stability against stock market fluctuations and longevity risk.

United of Omaha Life Insurance Company provides two varieties of annuities: income annuities and deferred annuities. The major difference between these two types is timing and purpose. Suppose you're nearing retirement age or already retired. In that case, income annuities can provide a reliable income stream that you can't outlive. It essentially supplements your retirement income through a series of payments provided throughout your lifetime or for a specific period.

If you're still years away from retirement, deferred annuities let you grow your money at a set rate without paying taxes on the gains until later. You get out what you put in, even if the market goes down. Income annuities pay you immediately or soon, while deferred annuities build up your money now so you can turn it into income payments when you're ready to retire.

Choosing based on your life stage and goals

Life insurance is most valuable when you're younger, have kids, and a mortgage, particularly if your family would face financial hardship without your income.

When you get closer to retirement, annuities look more appealing. Maybe you've done a good job saving money over the years, but you want to make sure you'll have a steady income coming in every month once you stop working.

Many people use both, just at different times. You might get life insurance in your 30s to protect your family, then add an annuity in your 50s to secure your retirement. It's like having one tool for protecting the people you love and another for protecting your future.

Making informed financial decisions

The choice between annuities and life insurance depends on your current priorities, family situation, and long-term financial objectives. Life insurance may be vital to your financial stability if others rely on your earnings. If you're focused on retirement income planning, annuities offer unique benefits worth exploring.

By understanding what each accomplishes and how they work, you can make informed decisions that support your family's security and financial confidence throughout different stages of life. Consider working with a qualified Mutual of Omaha financial representative who can help you evaluate how these tools might complement your overall financial strategy. Have a financial representative contact you today.