There are two popular products and financial advisors and insurance agents suggest for retirement. While they both come from insurance companies, and are similar in some ways, the differences are important. Are any of these products right for you? Which one is best? Let us look at single premium whole life (SPLI) and annuities to compare!

Immediate Retirement Fixed Annuities

• Funded with one lump sum payment.
• Give immediate income as specified in the contract terms.
• The death benefit will not usually be any more than the cash value of the annuity.
• Value may grow by a specified index rate or market index.
• Early Surrender Penalties and Possible Fees.
• Policy may have provisions to avoid penalties in some cases, like for a terminal illness or nursing home confinement.  

Single Premium Whole Life Insurance

• Funded by one lump sum.
• It usually provides an actual coverage amount that is many times the lump sum.
• Cash value may grow quickly, compared to other types of life insurance, because the coverage is funded up front.
• Surrender charges for an early cash out.  Some may have fees.
• The contract may have some provisions to avoid surrender charges in some cases (terminal illness or nursing home confinement).
• Potential to borrow against or cash out some time in the future.
• The cash value can grow by a fixed interest rate or market index.

So what is the difference between single premium life and annuities?

Well SPLI is mostly intended for wealth transfer to beneficiaries. You can turn an amount of cash into a death benefit that is usually a lot larger. Immediate annuities are usually intended to be used as a retirement income vehicle.

Now they both cross some lines. Annuities can have a death benefit to heirs, but will not be any larger than the cash value. SPLI leaves the face value to heirs like any life insurance. Annuities provide retirement income, but SPLI can be borrowed aganst or cashed out. But they are not intended, in the main, for these alternate uses.

So which one is best for you? You have to decide what you want. If you hae some money you do not need to live on, and you would like to be assured you can leave a larger cash estate to your kids, grand kids, or a favorite charity, SPLI may be for you. If you want a retirement income, consider an annuity.

Contracts differ, and you may find one or the other that gives you the best of both worlds. But before you do some shopping, it is best to think about your own personal situation, goals, and finances.

Would you like more information? We have found a couple of useful articles, and we posted them with links below.

Single Premium Life Insurance Explained

Immediate Annuities for Retirement Planning

Before you purchase any sort of retirement planning product, make sure you walk in knowing what your goals are. Then if you understand the basics of the products, you are in a good situation to make the right decision for you and your family!

I have been reading a lot of articles about retirement annuities, both by those who really like the products, and by other financial experts who are not fans. It is important to find the middle ground when researching fixed annuities, because many writers have biases. Those who like stocks, for instance, will be likely to highlight the disadvantages, while broker types will be bigger fans of fixed annuities.

Who Do Fixed Annuities Serve Best?

It will always be the premise of any articles I write that no one solution is the best answer for everybody. But you do have lots of choices. Here are some things to think about if you are considering annuities for retirement planning.

• Would You Like a Guaranteed Income?
• Will You Benefit from Tax Deferred Accumulation?
• Can you Commit to Putting Money Aside for Years?
• Would you be willing to sacrifice some upside for the guarantee of less risk?

So fixed retirement annuities tend to work well for people who can commit to leaving their money in the account. Most plans have penalties for early cashouts, unless it is for one of the reasons specified in the contract. Some examples of these exceptions to the penalty might be a severe illness or confinement to a nursing home. And the tax advantages may evaporate if you need to take your money out before retirement age.

But do not overlook the chance to guarantee that your money will not evaporate. In addition, the tax deferred accumulation can really help you grow savings.

Learn More About Retirement Annuities

This article is not really meant to discuss every detail of these types of savings.  You can find a lot more information online.

Visit Here: Explain Fixed Annuities or here: Free Online Annuity Quotes

Immediate vs Deferred Annuities

There are 2 ways to build your cash account. An immediate contract means that you deposit a lump sum, and payouts can start right away. Deferred contracts mean that the cash will grow over a period of years. Sometimes these are funded with a lump sum, but often they are funded with periodic contributions made over a period of years.

Why Are Fixed Annuities Safe?

They will either have a fixed payout, or they will be pegged to a market index. It is easy enough to understand a fixed payout of say, 6%. This amount will be returned in up market years and down market years. Equity indexed contracts, on the other hand, will have returns pegged to a major market index like the S&P500. In up years, the owner will earn  some percentage of the gains. In down years, the cash account is guaranteed not to lose money, and may even be guaranteed to have a small gain (i.e. 2 – 3%).

So annuities can be atractive when compared to lower paying bank savings accounts or riskier stocks. So what’s the catch? Well, again, you need to think in the long term. You often have to commit to keep your money locked up for several years. You can find a variety of terms from a few years, to over a decade though. Of course, the longer you will commit your money, the more favorable terms you will get.

Who Sells Annuities?

Fixed annuity products come from insurance companies. Indeed, they combine features of investments with other features of insurance. For instance, if you choose a contract with a guaranteed payout of 10 years or a lfetime, that may come from an insurance feature, or the cash value of your account.