Retire Confidently Podcast

Are you aware of this retirement option?

June 26, 2023 Telton W. Hall
Retire Confidently Podcast
Are you aware of this retirement option?
Show Notes

Life insurance that can be transferred to an annuity is called a life insurance annuity. It is a type of life insurance policy that allows the policyholder to convert a portion of the death benefit into an annuity. The annuity will then pay out a regular income stream to the policyholder during their lifetime.

There are two main types of life insurance annuities:

  • Immediate annuities start paying out income immediately, either as a lump sum or in regular payments.
  • Deferred annuities do not start paying out income until a later date, such as retirement.

Life insurance annuities can offer a number of benefits, including:

  • Tax-deferred growth: The cash value of a life insurance annuity grows tax-deferred, meaning that the policyholder does not have to pay taxes on the investment earnings until they start receiving income from the annuity.
  • Regular income stream: A life insurance annuity can provide a guaranteed income stream for the policyholder during their lifetime.
  • Death benefit: In the event of the policyholder's death, the death benefit will be paid out to the beneficiaries.

However, there are also some potential drawbacks to life insurance annuities, including:

  • High fees: Life insurance annuities can have high fees, which can eat into the investment earnings.
  • Surrender charges: If the policyholder surrenders the annuity early, they may have to pay surrender charges.
  • Complexities: Life insurance annuities can be complex, and it is important to carefully read the terms and conditions before purchasing one.

If you are considering a life insurance annuity, it is important to speak with a financial advisor to discuss your individual needs and circumstances. 

Here are some of the factors to consider when deciding whether to transfer a life insurance policy to an annuity:

  • Your financial goals: What are your financial goals for retirement? Do you need a guaranteed income stream? Do you want to maximize your tax benefits?
  • Your age: If you are nearing retirement, you may want to consider converting your life insurance policy to an annuity to provide a guaranteed income stream.
  • Your health: If you are in good health, you may be able to get a higher annuity payout than if you are in poor health.
  • The fees: Be sure to compare the fees of different annuities before you make a decision.

Are you getting what you want or are you putting yourselves in a position someone could try and get the better of you?

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Telton W Hall, CFP® is a husband, father, retirement planning expert, small-town-boy at heart, nationally published author, sought-after speaker, former college basketball player, founder/owner/team member of Utah based Advanced Financial Planning LLC, hiking enthusiast, Jesus follower, business leader, team builder, and to the core Telton is an educator.