It is not often the topics of life annuities and insurance have been brought up in the exact same discussion, primarily because they serve two quite different purposes. However, when utilized in the context of a complete financial plan constructed on a solid foundation of financial and family safety, both function hand-in-hand to guard the complete circle of life.
The simple premise of life insurance is that almost all individuals, throughout their financial lives, have obligations and expenses that have to be paid, both now and later on. At the earlier phases of life, these are funded through cash flow and gathered savings. But, when a person dies too soon, these obligations and expenditures are generally left unpaid since not enough time has passed to be able to accumulate the capital required. Or, if a family is saving for college, and has just gathered a portion of the required funds when one of the chief breadwinners dies, the future obligation is unfunded, and the likelihood of continued savings towards to target is diminished.
Life insurance becomes the origin of the much-needed capital to meet these obligations and pay down debt. Basically, it replaces the income earning ability of a breadwinner and ensures that the family may continue to maintain the existence to which it is accustomed, which explains why it’s important to correctly assess the financial needs of the family so as to have enough protection.Life insurance is used as a capital protection in any instance where a premature death may leave a family, a company or an estate in a shaky financial situation. Life insurance provides the capital a company needs to maintain continuity whilst looking for a replacement or rebuilding client goodwill. When a person dies and leaves a large estate, life insurance policy provides the liquidity that the heirs will need to pay estate settlement expenses and taxes so that assets do not need to be pressured into liquidation.
In the later stages of life, after savings and assets have been accumulated, annuities serve to protect this capital so that it can be preserved for future use.The unique characteristics of annuities combine to create a shield of protection that allows the capital to accumulate while guaranteeing its full return to investors. Additionally, annuities will protect the distribution of the capital to ensure that it will fully fund a lifetime income stream without interruption or loss of value.Annuities are also issued by life insurance companies as a contract much like life insurance policies, except that they insure individuals against the possibility of living too long and outliving their income sources. When a person transfers a portion of his assets to an annuity, it can be left to accumulate, or it can be converted to income (annuitized).
Businesses utilize annuities when they will need to finance installment payments or even an income stream as part of a compensation arrangement with an important person, or as a funding vehicle in a buy-out situation.
In peoples financial life, the need to create capital and preserve it’s vital to meeting their main responsibilities and supplying the financial security all families need. No other financial instrument can create capital as quickly or as inexpensively as life insurance and no additional financial product can preserve capital and guarantee its entire distribution over a life like annuities.For most people, a complete financial plan will include both if their current and future financial security is a priority.