There are two main types of annuities-deferred and immediate-and two main types of life insurance-term and whole life.
| Life Insurance | Annuities | |||
| Term life | Whole life | Deferred annuities | Immediate annuities | |
| Main reason for buying it | Provide income for dependents | Provide income for dependents or meet estate planning needs | To accumulate money in a tax-deferred product | To assure you don’t “outlive your income” |
| Pays out when | You die | You die, borrow the cash value or surrender the policy | You make withdrawals | One period after you buy the annuity, stops paying when you die* |
| Typical form of payment | Single sum | Single sum | Single sum or income | Lifetime income |
| Buyer’s age when it is typically bought | 25-50 | 30-60 | 40-65 | 55-80 |
| Accumulates money tax-deferred? | No | Yes | Yes | Yes, but only in the early payout years |
| Pays a death benefit? | Yes | Yes | Yes | *payments continue if the annuity has a guaranteed-period option that hasn’t expired at the annuitant’s death |
| Are benefits taxable income when received? | No | No, unless a cash value withdrawal exceeds the sum of premiums | Yes, but only the part derived from investment income | Yes, but only the part derived from investment income |
