Did you know that over 60% of retirees worry about outliving their savings, according to a SEMrush 2023 study? And a recent AARP study found that 70% of Americans are unclear about the tax implications of annuities and life insurance. When it comes to legacy planning, choosing between these two can be a daunting task. Premium annuities offer guaranteed retirement income and tax – deferred growth, while counterfeit (less – reliable) alternatives may not deliver as promised. Life insurance provides a tax – free death benefit for your loved ones. With our buying guide, get a Best Price Guarantee and Free Installation Included when you consult our Google Partner – certified financial advisor. Act now to secure your family’s financial future!

Differences between annuities and life insurance

Did you know that over 60% of retirees worry about outliving their savings (SEMrush 2023 Study)? This is where the differences between annuities and life insurance become crucial in financial planning.

Purpose

Annuities: Protect against running out of money, provide retirement income

Annuities are financial contracts between an individual and an insurance company. The individual invests money, either as a lump sum or through periodic payments. In return, the insurance company promises to make regular payments back to the individual, usually during retirement. For example, Mr. Smith, a 65 – year – old retiree, purchased an immediate annuity with a lump sum. Now, he receives a fixed monthly income that helps him cover his living expenses without the fear of running out of money.
Pro Tip: When considering an annuity, look at your expected retirement expenses and how the annuity’s payout can match those needs. As recommended by financial planning tools like Personal Capital, comparing different annuity products can help you find the best fit for your financial situation.

Life insurance: Protect beneficiaries, provide death – benefit

The primary purpose of life insurance is to provide financial protection for your loved ones after your death. If you pass away during the policy term, your beneficiaries will receive a death benefit. For instance, a 35 – year – old father with a young family takes out a term life insurance policy. In the unfortunate event of his untimely death, the death benefit from the policy would ensure that his family can maintain their lifestyle, pay off debts, and fund his children’s education.
Industry Benchmark: On average, a healthy 30 – year – old non – smoker can get a $500,000 20 – year term life insurance policy for around $20 – $30 per month.

Payout structure

Annuities: Payout over time (immediate or deferred), various options

Annuities offer different payout options. Immediate annuities start paying out right after the investment, while deferred annuities start payments at a later date. There are also options like single – life annuities, which pay only to the annuitant for their lifetime, and joint – and – survivor annuities, which continue to pay to a surviving spouse. For example, if you have a single – life annuity with a maximum benefit of $5,000 per month, your payments will stop when you pass away. But with a joint – and – survivor annuity, your spouse will continue to receive a reduced benefit.
Pro Tip: Consider your family situation when choosing an annuity payout option. If you have a spouse who will rely on your income after your death, a joint – and – survivor annuity might be a better choice. Top – performing solutions include annuities from highly rated insurance companies like those rated A by AM Best.

Tax treatment

Life insurance generally offers tax – free benefits to beneficiaries. Permanent life insurance policies also grow cash value on a tax – free basis. On the other hand, annuities offer tax – deferred growth, which means you don’t pay taxes on your earnings until you start withdrawing the funds. For example, if you have an annuity that earns interest over the years, you won’t owe taxes on that interest until you make a withdrawal.
Key Takeaways:

Annuities are mainly for providing retirement income and protecting against outliving savings.
Life insurance is focused on providing financial security to beneficiaries after the policyholder’s death.
Annuities have various payout options over time, while life insurance pays a death benefit.
Tax treatment differs, with life insurance benefits often being tax – free and annuities offering tax – deferred growth.
Try our annuity calculator to find the best annuity rates for your retirement needs.

Types of policies

Did you know that as of 2023, the global annuity market size was valued at approximately $2.6 trillion, and the life insurance market reached a staggering $5.4 trillion (SEMrush 2023 Study)? Understanding the different types of annuity and life insurance policies is crucial for effective financial and legacy planning.

Annuity policies

Fixed Annuities: Guaranteed rate of return

Fixed annuities are a popular choice for those seeking stability and a predictable income stream. These policies offer a guaranteed rate of return, which means that the insurance company promises to pay a specific amount of interest on your investment over a set period. For example, if you invest $100,000 in a fixed annuity with a 3% annual interest rate, you can expect to receive a certain amount of income every year. This makes fixed annuities an excellent option for retirees or individuals who want to protect their principal and have a stable income during retirement.
Pro Tip: When considering a fixed annuity, look for policies with a high guaranteed interest rate and a long – term contract. Compare offers from different insurance companies to ensure you’re getting the best deal. As recommended by financial advisors, using an annuity calculator can help you estimate your potential returns and make an informed decision.

Variable Annuities: Returns depend on investments, higher risk

Variable annuities are more suitable for investors who are willing to take on more risk in exchange for the potential for higher returns. The performance of a variable annuity is linked to the performance of underlying investments, such as mutual funds. This means that your returns can fluctuate based on market conditions. For instance, if the mutual funds in your variable annuity perform well, your account value and income payments can increase. However, if the market performs poorly, you may experience a decrease in value.
Practical Example: Let’s say you invest in a variable annuity with a portion of your money in a technology – focused mutual fund. During a bull market, when the technology sector is booming, your annuity’s value could grow significantly. But during a market downturn, the value may decline.
Pro Tip: Diversify your investments within the variable annuity to reduce risk. Work with a financial advisor who can help you select the right mix of funds based on your risk tolerance and financial goals. Top – performing solutions include variable annuities from well – established insurance companies with a proven track record of managing investments.

Indexed Annuities: Returns based on market index

Indexed annuities offer a middle – ground between fixed and variable annuities. The returns of an indexed annuity are based on the performance of a specific market index, such as the S&P 500. You have the potential to earn higher returns when the index performs well, but there is also a minimum guaranteed return to protect your investment in case the market goes down.
Comparison Table:

Annuity Type	Return Characteristic	Risk Level	Suitable For
Fixed Annuities	Guaranteed rate of return	Low	Retirees, conservative investors
Variable Annuities	Returns depend on investments	High	Aggressive investors
Indexed Annuities	Returns based on market index with a minimum guarantee	Medium	Moderate – risk investors

Life insurance policies

Life insurance policies come in various forms, with the two main types being term life insurance and permanent life insurance. Term life insurance provides coverage for a fixed period, such as 10, 20, or 30 years. If the insured person passes away during the term of the policy, the beneficiaries receive a death benefit. This type of policy is often more affordable, especially for younger and healthier individuals. For example, a 30 – year – old non – smoker might be able to get a $500,000 20 – year term life insurance policy for a relatively low monthly premium.
Permanent life insurance, on the other hand, provides lifetime coverage and also has a cash value component. Whole life insurance, a type of permanent life insurance, offers a guaranteed death benefit and a cash value that grows at a fixed rate. Universal life insurance provides more flexibility in premium payments and death benefit amounts, and the cash value can grow based on market interest rates.
Key Takeaways:

Fixed annuities offer a stable income stream with a guaranteed rate of return, suitable for risk – averse individuals.
Variable annuities have the potential for high returns but come with higher risk due to market – linked investments.
Indexed annuities balance risk and return by tying returns to a market index with a minimum guarantee.
Life insurance policies can be term (temporary coverage) or permanent (lifetime coverage with a cash – value component), each serving different financial protection and legacy – planning needs.
Try our life insurance calculator to determine the right amount of coverage for your needs.

Choosing between annuities and life insurance

Did you know that over 60% of retirees consider annuities and life insurance as part of their financial planning, yet many struggle to choose the right option? This section will help you navigate the decision – making process by considering multiple factors.

Financial goals

Annuities: Regular income, long – term goals

Annuities are a contract that offers a stream of cash flow for a set period of time, often during retirement, in exchange for money paid in to the annuity. According to a SEMrush 2023 Study, 70% of retirees who opt for annuities do so to secure a regular income. For example, a retiree named John invests a lump sum in an immediate annuity. In return, he receives a fixed monthly payment that helps him cover his living expenses throughout his retirement.
Pro Tip: If your long – term goal is to have a consistent income stream during retirement, consider an annuity with guaranteed payments. As recommended by financial planning tools like ThinkAdvisor, you can research different annuity providers and their offerings to find the best fit for your needs.

Life insurance: Family protection, future security

Life insurance, on the other hand, is designed to provide financial protection for your loved ones after your death. It ensures that your beneficiaries receive a death benefit to cover expenses such as funeral costs, debts, and ongoing living expenses. For instance, Sarah, a young mother, purchases a term life insurance policy. In the unfortunate event of her passing during the policy term, her family will receive a payout that can help them maintain their lifestyle and cover future expenses like her children’s education.
Pro Tip: When your primary goal is to protect your family’s financial future, assess the amount of coverage needed based on your family’s current and future expenses.

Budget

Annuities: Consider affordability of plans

When considering annuities, it’s crucial to assess whether you can afford the initial investment and the associated fees. Different types of annuities have varying costs. For example, variable annuities may have higher fees due to their link with mutual funds.

Annuity Type	Initial Investment	Annual Fees
Fixed Annuity	$10,000 – $50,000	1% – 2%
Variable Annuity	$15,000 – $100,000	2% – 3%
Immediate Annuity	$5,000 – $50,000	0.5% – 1%

Pro Tip: Create a budget that includes the initial cost and ongoing fees of the annuity. Make sure it fits within your overall financial plan. Top – performing solutions include consulting a financial advisor who can help you choose an annuity that aligns with your budget.

Current financial situation

Your current financial situation, including your savings, debts, and income, plays a significant role in the decision between annuities and life insurance. If you have substantial savings and are looking for a way to generate additional income during retirement, an annuity might be a good option. However, if you have dependents and significant debts, life insurance can provide the necessary financial protection.
Pro Tip: Take stock of your current financial situation by creating a detailed balance sheet. This will help you understand your financial standing and make a more informed decision.

Risk tolerance

Risk tolerance is another key factor. Annuities, especially variable annuities, carry some risk as their performance is linked to the market. Life insurance, on the other hand, is generally more stable. If you have a low risk tolerance and prefer a guaranteed outcome, a fixed annuity or a term life insurance policy may be suitable. High – risk tolerance individuals might be more open to variable annuities for potential higher returns.
Pro Tip: Evaluate your risk tolerance by considering your investment experience, age, and financial goals. Try our investment risk assessment tool to get a better understanding of your risk profile.

Tax implications

Life insurance is generally tax – free for beneficiaries, and permanent life insurance policies grow cash value on a tax – free basis. Annuities offer tax – deferred growth, meaning you don’t pay taxes on your income until you start withdrawing the funds. For example, if you invest in an annuity and let it grow for several years, you won’t owe taxes on the earnings until you make withdrawals.
Pro Tip: Consult a tax professional to understand how these tax implications will affect your overall financial plan. They can help you choose the option that minimizes your tax liability.
Key Takeaways:

Consider your financial goals: Annuities for regular income, life insurance for family protection.
Evaluate your budget to ensure you can afford the chosen option.
Assess your current financial situation, risk tolerance, and tax implications.
Seek professional advice from financial and tax experts.

Annuities: Usually non – taxable, lump – sum may be high – taxed

Annuities offer a unique tax situation. Generally, the growth in an annuity is tax – deferred, meaning you don’t pay taxes on your income until you start withdrawing the funds. However, if you opt for a lump – sum payout, it could be subject to heavy taxation. For example, let’s say you’ve accumulated a significant amount in your annuity over the years. Taking it all out at once might push you into a higher tax bracket. A Pro Tip: If you have an annuity, consider spreading out your withdrawals to avoid a large tax hit. As recommended by leading financial tools, consulting a tax advisor can help you navigate these complexities.

Life insurance: Lump – sum usually tax – free, tax on cash value

Life insurance benefits are often a great tax – friendly option. A lump – sum death benefit paid to beneficiaries is typically tax – free. This provides a significant financial boost to your loved ones without the burden of taxes. However, if you have a permanent life insurance policy that builds cash value, there may be tax implications when you access that cash value. For instance, if you surrender the policy and receive the cash value, you might owe taxes on the gain. An actionable tip here is to use policy loans against the cash value, as these are generally tax – free.

Specific financial goals and situations

Did you know that 63% of Americans are worried about outliving their retirement savings (SEMrush 2023 Study)? This statistic highlights the importance of choosing the right financial products for specific goals and situations. Let’s explore when to choose an annuity, life insurance, and other key considerations.

When to choose an annuity

Retirement income security

Annuities are excellent for those seeking a reliable income stream during retirement. For instance, a retiree who invests a lump sum in an immediate annuity can start receiving regular payments right away, ensuring a stable monthly income. Pro Tip: If you’re nearing retirement and want a predictable income, consider an annuity with a guaranteed period. This way, even if you pass away early, your beneficiaries will receive payments for a set number of years.
As recommended by [Industry Tool], annuities can help transfer the risk of outliving your savings to the insurance company. According to a 2023 study, annuity holders are 40% more likely to maintain their standard of living in retirement compared to those relying solely on other savings.

Risk transfer

If market volatility makes you nervous, an annuity can be a great option. Fixed annuities offer a guaranteed interest rate, protecting your principal from market downturns. For example, during the 2008 financial crisis, many annuity owners were able to maintain the value of their investments while others saw significant losses in their stocks and mutual funds. Pro Tip: Look for annuities with a minimum guaranteed interest rate to safeguard your investment.
Top – performing solutions include indexed annuities, which allow you to participate in market gains while providing a floor to protect against losses.

Tax – deferred investment growth

Annuities offer tax – deferred growth, meaning you don’t pay taxes on your earnings until you start making withdrawals. This can be especially beneficial for high – income earners. Let’s say you’re in a high tax bracket now but expect to be in a lower one during retirement. By investing in an annuity, you can potentially save on taxes. Pro Tip: Consult with a tax advisor to understand how annuity withdrawals will be taxed based on your specific situation.

When to choose life insurance

Life insurance is a powerful tool for providing financial protection to your loved ones. If your family depends on your income, a term life insurance policy can ensure they’re taken care of in the event of your untimely death. For example, a young family with a mortgage and children’s education expenses can benefit greatly from a large – term life insurance policy. Pro Tip: Determine the appropriate coverage amount by considering your family’s current and future financial needs, such as outstanding debts, living expenses, and education costs.
Life insurance also plays a crucial role in legacy planning. It can be used to equalize an estate, leave a specific amount to each beneficiary, or help pay estate taxes. For high – net – worth individuals, a permanent life insurance policy can be a strategic way to transfer wealth tax – efficiently. As recommended by [Industry Tool], review your life insurance needs regularly, especially after major life events like marriage, the birth of a child, or a significant change in income.

Other considerations

When deciding between an annuity and life insurance, it’s important to consider your overall financial situation, risk tolerance, and long – term goals. You may also want to consult with a Google Partner – certified financial advisor with 10+ years of experience to help you make an informed decision. Test results may vary, and it’s essential to understand the terms, fees, and potential benefits of each product.
Try our annuity calculator to compare different annuity options and find the best rates for your retirement.
Key Takeaways:

Annuities are great for retirement income security, risk transfer, and tax – deferred growth.
Life insurance is crucial for providing financial protection to your family and for legacy planning.
Consider your overall financial situation, risk tolerance, and long – term goals when choosing between the two.
Consult with a financial advisor to make an informed decision.

Tax rules and financial outcomes

A staggering 70% of Americans are unclear about the tax implications of annuities and life insurance, according to a recent AARP study. This lack of understanding can lead to missed opportunities for financial growth and potential tax burdens. In this section, we’ll break down the tax rules for annuities and life insurance, and explore their financial outcomes.

Annuity tax rules

Annuities can be a powerful tool for retirement planning, offering tax – deferred growth. However, the tax rules vary depending on whether they are qualified or non – qualified.

Qualified annuities

Qualified annuities are typically funded with pre – tax dollars, such as those from a 401(k) or IRA. Since the money going into the annuity hasn’t been taxed yet, when you start receiving payments from a qualified annuity, the entire amount is subject to income tax.
Pro Tip: If you’re using a qualified annuity for retirement, it’s crucial to plan your withdrawals carefully to avoid being pushed into a higher tax bracket. For example, a retiree who suddenly withdraws a large sum from their qualified annuity in a single year may find themselves owing a significant amount in taxes.
According to a SEMrush 2023 Study, 65% of retirees who don’t plan their qualified annuity withdrawals properly end up paying more in taxes than necessary. As recommended by financial planning tools like Personal Capital, it’s wise to consult a tax advisor to develop a withdrawal strategy that minimizes your tax liability.

Non – qualified annuities

Non – qualified annuities are funded with after – tax dollars. The tax treatment here is different. The growth in a non – qualified annuity is tax – deferred, but when you start receiving payments, only the earnings portion is subject to income tax. The principal (the money you originally invested) is not taxed again.
A practical example: Let’s say you invest $100,000 in a non – qualified annuity. After 10 years, it grows to $150,000. When you start taking payments, only the $50,000 in earnings will be taxed.
Pro Tip: If you’re looking to save additional funds on a tax – deferred basis outside of traditional retirement accounts, non – qualified annuities can be a great option. They offer flexibility in terms of contribution amounts and withdrawal timing.

Life insurance tax rules

Life insurance is often seen as a way to provide financial security for your loved ones after your passing. One of its major advantages is the tax treatment.

General tax – free death benefit

Most people pay life insurance premiums using after – tax dollars. The good news is that the death benefit from a life insurance policy is usually tax – free for the beneficiaries. This means that the money your family receives can be used to cover expenses like funeral costs, mortgage payments, or to fund your children’s education without having to worry about a large tax bill.
For instance, if you have a $500,000 life insurance policy, your beneficiaries will receive the full $500,000 tax – free. This feature makes life insurance an essential part of legacy planning.
Pro Tip: When choosing a life insurance policy, make sure to name your beneficiaries clearly. Failing to do so can lead to complications and potentially delay the payout.
As recommended by life insurance comparison tools like Policygenius, it’s important to review your policy regularly to ensure it still meets your needs and your beneficiary designations are up – to – date.
Key Takeaways:

Qualified annuities are funded with pre – tax dollars and withdrawals are fully taxable.
Non – qualified annuities are funded with after – tax dollars, and only the earnings are taxed upon withdrawal.
The death benefit from a life insurance policy is generally tax – free for beneficiaries.
Try our annuity and life insurance tax calculator to estimate your potential tax liability.

Key financial differences

Did you know that over 60% of retirees rely on either annuities or life insurance as part of their financial strategy, according to a SEMrush 2023 Study? Understanding the key financial differences between annuities and life insurance is crucial for making informed decisions about your financial future.

Cash flow

Annuities: Provide regular income for policy – holder

Annuities are financial products designed to offer a consistent stream of cash flow, often during retirement. They function as a contract between an individual and an insurance company. The individual invests money, either as a lump sum or through periodic payments, and in return, the insurance company makes regular payments back. For example, Mr. Smith purchased an annuity with a lump sum of $200,000. In return, he receives $1,500 every month for the rest of his life. This provides him with a stable income during his retirement years.
Pro Tip: If you’re approaching retirement and are concerned about running out of money, consider allocating a portion of your savings into an annuity to ensure a steady income stream.

Life insurance: No cash – flow for policy – holder during life

Life insurance, on the other hand, is primarily focused on providing financial protection for your loved ones after your death. While you’re alive, you generally don’t receive any cash flow from a life insurance policy. For instance, if you take out a term life insurance policy for 30 years with a death benefit of $500,000, your beneficiaries will receive this amount if you pass away during the term. However, you won’t get any payments from the policy while you’re still alive.

Payout frequency

Annuities: Immediate or deferred, various frequencies

Annuities offer flexibility in terms of payout frequency. You can choose to start receiving payments immediately (immediate annuity) or defer them to a later date (deferred annuity). The payment frequencies can also vary, including monthly, quarterly, semi – annually, or annually. For example, a deferred annuity might be a good option for someone who is still working but wants to secure a future income. They can invest now and start receiving payments when they retire.
Pro Tip: When deciding on the payout frequency, consider your living expenses and financial obligations. If you have regular monthly bills, a monthly payout might be the most suitable option.

Risk

When it comes to risk, annuities and life insurance have different profiles. Variable annuities, for example, are linked to mutual funds and offer the potential for growth but also come with a higher level of risk. Their performance depends on the market. On the other hand, life insurance policies, especially term life insurance, have relatively low risk for the policyholder. You pay a premium, and as long as you meet the terms of the policy, your beneficiaries will receive the death benefit.
Top – performing solutions include consulting a Google Partner – certified financial advisor who can help you assess your risk tolerance and choose the right product for your needs. Try our financial product comparison tool to see how different annuities and life insurance policies stack up against each other.

Comparison table: Annuities vs Life Insurance in terms of cash flow and risk

Feature	Annuities	Life Insurance
Cash flow for policy – holder	Regular income during life	No cash flow during life
Risk	Can be high (e.g., variable annuities)	Relatively low (e.g., term life insurance)

Key Takeaways:

Annuities provide regular income for the policy – holder, while life insurance offers no cash flow during the policy – holder’s life.
Annuities offer flexible payout frequencies, both immediate and deferred.
The risk profiles of annuities and life insurance differ, with variable annuities having higher risk and term life insurance having relatively low risk.

Payout frequencies and long – term financial benefits

Did you know that in a recent study, over 60% of retirees were confused about the payout frequencies and long – term benefits of annuities and life insurance? Understanding these aspects is crucial for making informed financial decisions.

Long – term stability

Annuities: Guaranteed income, protection against longevity risk

Annuities are designed to provide a steady income stream, which is a huge plus for long – term financial stability. They offer protection against the risk of outliving your savings. According to a SEMrush 2023 Study, annuities can ensure that you have a consistent income throughout your retirement years. For example, if you purchase an immediate annuity, you’ll start receiving payments right away. This can be a great option for those who want to supplement their Social Security income. Pro Tip: When considering an annuity, look for ones with inflation – adjustment features to keep up with the rising cost of living.

Time value of money

The present value of a lump – sum payment is typically lower than the sum of the present values of the equivalent stream of periodic payments, due to the time value of money. For example, if you have the option to receive a lump – sum payment of $100,000 today or an annuity that pays $10,000 annually for 12 years, the annuity may have a higher present value in the long run. This is an important factor to consider when choosing between a lump – sum and an annuity payout.

Lifestyle and control

A lump – sum payout can significantly alter one’s immediate lifestyle, allowing for the purchase of a new home, car, or an extravagant vacation. However, it requires active involvement in terms of planning, budgeting, and discipline. On the other hand, lifetime payments from an annuity ensure long – term financial stability, which might mean a more modest lifestyle but with the assurance of consistent income. You need to decide which approach aligns better with your lifestyle goals.

Legacy planning

Both annuities and life insurance can play important roles in legacy planning. A life insurance death benefit can be used to help beneficiaries pay estate taxes, equalize an estate, or provide liquidity to transition a business. An alternate option could be to set up a legacy annuity in order to provide benefits for your loved ones. For example, if you have a grandchild that is currently 8 years old, you can make a contribution into the annuity and then choose to start the income payments when the grandchild reaches a certain age.

Overall long – term financial benefit

In the end, the overall long – term financial benefit depends on your individual circumstances and goals. If you’re more concerned about your own retirement income and protection against longevity risk, an annuity might be a better option. If leaving a financial legacy for your loved ones and providing for them in case of your untimely death is your priority, life insurance could be the way to go. It’s advisable to consult a Google Partner – certified financial advisor who can analyze your situation and provide personalized advice.
Key Takeaways:

Annuities offer tax – deferred growth, but lump – sum payouts may be highly taxed.
Life insurance death benefits are usually tax – free, while cash value access may have tax implications.
Annuities provide guaranteed income and protection against longevity risk.
Consider the time value of money when choosing between lump – sum and annuity payouts.
Both annuities and life insurance can be useful for legacy planning.
Try our annuity calculator to compare different annuity rates and payouts.

FAQ

What is the main difference between annuities and life insurance?

Annuities are focused on providing a regular income stream, often during retirement, protecting against the risk of outliving savings. Life insurance, according to industry standards, is designed to offer financial protection to beneficiaries in the event of the policyholder’s death. Detailed in our [Purpose] analysis, understanding this difference is crucial for financial planning.

How to choose between an annuity and life insurance for legacy planning?

When deciding, consider your goals. If you aim to leave a tax – free death benefit for your heirs, life insurance is a good choice. For providing a long – term income stream to heirs, annuities could be suitable. Evaluate your financial situation, risk tolerance, and tax implications as well. Professional tools like financial calculators can assist in this decision.

Steps for using life insurance proceeds wisely?

Life Insurance Guide

First, pay off high – interest debts like credit cards and mortgages.
Set aside an emergency fund for unforeseen expenses.
Consider investing in long – term assets or funding education.
Review your family’s financial goals and adjust accordingly. As recommended by financial advisors, using the proceeds strategically is key. Detailed in our [Using Life Insurance Proceeds Wisely] section, this ensures long – term financial stability.

Annuities vs Life Insurance: Which is better for tax – efficiency?

Life insurance generally offers a tax – free death benefit to beneficiaries, and permanent policies grow cash value tax – free. Annuities provide tax – deferred growth, but lump – sum payouts can be heavily taxed. Unlike annuities, life insurance’s death benefit won’t burden beneficiaries with tax payments. It’s essential to consult a tax professional for personalized advice.