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Life insurance death benefits can be quite large, so insurers often provide beneficiaries with numerous payout options. One of these is a life insurance annuity, paying the beneficiaries fixed amounts regularly to mimic a steady income stream. This article will explain what a life insurance annuity is, how it works, and how it differs from a life annuity.
A life insurance annuity is a method of paying out a life insurance death benefit in a series of regular, fixed payments instead of a lump sum. Beneficiaries may opt for a life insurance annuity if they find it easier to manage smaller, regular payments than one large lump sum.1
Beneficiaries can receive the death benefit payout via annuity in two ways:1
Fixed-period annuities pay out the death benefit in regular payments over a specified period, such as 10 or 20 years. The insurer divides the death benefit amount by the payout period to determine the payout amounts. By the end of the fixed period, the death benefit will have been paid out in full. Furthermore, beneficiaries can choose other loved ones to receive payments if they pass away before the payout is complete.
Lifetime annuities pay out the death benefit over the beneficiary’s lifetime. The insurer calculates the monthly payout amount based on the beneficiary’s age. Lifetime annuity payments may be smaller if the beneficiary’s life expectancy is long. However, the beneficiary can enjoy regular payments for life.
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Although a life insurance annuity and life annuity may sound the same, they are actually different products. As mentioned earlier, a life insurance annuity is a payout method for a policy’s death benefit. Rather than a lump sum, it pays the death benefit in regular payments. A life annuity, on the other hand, is a retirement investment product. These provide fixed payments to the policyholder at regular intervals, offering a guaranteed income stream in retirement. Here are some key differences:1
| Life insurance annuity | Life annuity | |
|---|---|---|
| Purpose | To protect loved ones with a death benefit | To access a steady income stream in retirement |
| Primary beneficiary | The policyholder’s beneficiaries named in the policy | The policyholder |
| Payment structure | Payments made upon the policyholder’s death | Payments made while the policyholder is alive |
An annuity payout option can make sense for your beneficiaries in several situations:
Death benefits don’t have to be paid out as lump sums. Life insurance annuities allow you to opt for periodic payments to offer an income stream. This makes the death benefit easier to manage and can potentially help unpaid amounts earn additional interest.
Aflac offers numerous life insurance policies, from term to whole life insurance, with several payout options available. Speak with an agent today to explore your options and get a quote.
1Policygenius – What is a life insurance annuity? Updated September 5, 2023. https://www.policygenius.com/life-insurance/what-is-a-life-insurance-annuity/. Accessed March 14, 2024.
Coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.
68000 series: In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400.65000 series: In Virginia, Policies ICC0965JTO & ICC0965JWO. B61000 series: In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO, B61JTO. B60000 series: In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Q60000 series: Whole: In Arkansas, Delaware & Oregon, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In Texas, Policy Q60100MTX.Q60000 series: Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Oregon, Texas, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C.
Final Expense insurance coverage is underwritten by Tier One Insurance Company.
The life insurance policy described herein contains an optional Accelerated Death Benefits Rider that is intended for favorable tax treatment under Section 101(g) of the Internal Revenue Code. Aflac does not give legal or tax advice. Please consult with a qualified legal, tax, and accounting advisor before engaging in any transaction. In AR, AZ, ID, OK, OR, PA, TX and VA: Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22. Tier One Insurance Company is part of the Aflac family of insurers. In California, Tier One Insurance Company does business as Tier One Life Insurance Company (Tier One NAIC 92908).
This is a brief product overview only. Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY or VA. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions. For complete details, including availability and costs, please contact your local Aflac agent.
Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.
Aflac does not offer Universal or Variable Universal life insurance
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