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?
Find out more about the Retire Confidently Program
Purchase The Secure Solution: Creating a High-Quality Retirement in a Low-Interest-Rate World
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.