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!