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Annuity vs. Life Insurance

Stan Haithcock
June 1, 2023
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Hi, I’m Stan The Annuity Man, America's annuity agent here to answer the burning question and compare annuities versus life insurance. Everyone asks me which one's better, and most of the time, both are sold improperly. Life insurance companies issue annuities, but life insurance and annuities are entirely different animals. And we'll talk about that.

As a side note and disclaimer, I'm Stan The Annuity Man. I sell annuities, Fixed Annuities. I do not sell life insurance even though I love life insurance. I've got tons on myself, so my wife will do really well when my Learjet hits the mountain. But I don't sell it, but it's a great product. But we need to talk about annuities versus life insurance and what's being sold out there, and what pitfalls you need to avoid. So, hang in there with me.

We're going to talk about annuities and life insurance. They are both excellent, they're both contracts, and they both solve for different things. First of all, life insurance companies issue annuities. Life insurance comes in many forms, whole life and index, universal life, term life, etc. And so do annuities. They also have many forms, but let's discuss the basics.


Let's talk about commissions. Let's get down and dirty with it, right? So, annuities and life insurance commissions are hidden, and you never see them. They're built into the products, paid from the company reserves, and it's a net transaction to you.

Income Stream

Let's do income. Income from annuities makes sense. In Roman times, annuities were put on the planet to pay a lifetime income stream to the dutiful Roman soldiers and their families. And to this day, people primarily use annuities and annuity types to provide lifetime income streams. Social Security is an annuity, and the pension that you hopefully have is an annuity. Now, what's happening in the life insurance world is they're also selling income, but in my opinion, I don't agree with that. What they're doing is they're saying, "You can take out a loan from the policy." Well, a loan is not income. You don't believe me? Let's do another example.

If you go to the bank and put money in a bank, and you take money out of a bank, is that income, yes, or no? No, it's not. When you put money in a life insurance policy and take money out of a life insurance policy, is that income, yes or no? No. Now the interesting part about that is I'll ask that to a life insurance agent, and they'll say, "Yeah, it's income." No, it's not, and it's a loan.

Death Benefits

Let's talk about death benefits. Do annuities have death benefits? Yes. Does life insurance have death benefits? Yes. What's the difference? Annuity death benefits are taxable. Life insurance death benefits are not taxable, and that's a big one. I always tell people, "Life insurance is the best return on investment you'll never see because you're dead, right?" It's great. The money passes probate free and tax-free to the listed beneficiaries on the policy.

That doesn't happen with annuities. With annuities, it's taxable, period. So, the biggest difference between life insurance and annuities is that life insurance is a tax-free, probate-free lump sum death benefit. And if you can qualify for life insurance because it's underwritten, meaning you have to go through the medical test, the blood work, the nurse coming to the house, and all that stuff, life insurance is the best product on the planet for death benefits.

For those of you out there smoking a pack of Marlboros every day and drinking a bottle of scotch, you might not qualify for life insurance, and you might have to get death benefits from an annuity. But understand that will be taxed, and that's the basics of life insurance versus annuities.

What are you trying to solve for? If death benefits or legacy, leaving money to heirs, is your primary concern, you need to try to get life insurance. You buy as many death benefits as humanly possible for the least amount of money. I don't sell life insurance; I just buy a ton of it myself. I'm not sure I'm a big fan of all the fancy life insurance products, especially those that talk about taking income, which, in essence, is a loan from the policy.


Annuities were put on the planet for income; primarily, that's what annuities do. I have an acronym called PILL, Principal protection, Income for life, Legacy, and Long-term Care, and annuities can solve that. Talking about long-term care for a second, there is long-term care coverage in some life insurance products that you can look at if you want to do a combo death benefit with a little bit of long-term care.

So that's it, annuities versus life insurance. Which one's better? It depends on what you're trying to solve but understand that life insurance companies issue annuities.


I got a call the other day from a guy who had gone to two different advisors and told him the exact same story of what he wanted to accomplish. One pitched an annuity, and one pitched a life insurance product. I'm like, "How's that even possible when they're listening to the same pitch and when they listen to the same goals and the same specifics laid out by the client?" I understand the pitch part, but I didn't get it. And so, I was telling him, "You just need to focus down on what you're trying to solve for."

They Are Contracts

In my opinion, a lot of the life insurance product sales that are going on right now are fitting square pegs into round holes. Life insurance is the way that I buy it. This isn't a recommendation because I don't sell it, but I buy the most death benefits for the least amount of money. My same type of will do, not might do approach applies to annuities. I find the highest contractual guarantees for your specific situation. In both cases, with life insurance and annuities, you need to be careful about buying hypothetical, theoretical, back-tested, projected, agent-hopeful return scenarios that are not guarantees. These are contracts. Both life insurance and annuities are contracts.

Buy the contractual guarantee. Don't buy the dream. You're going to own the contractual reality. Don't buy the sizzle. You're going to own the steak. Do I have to keep going with these really cool corny Southern analogies? No, I hope not because I want you to understand. If it sounds too good to be true, whether it's a life insurance policy or an annuity, it is every single time. These are contracts. There are no philanthropists at annuity companies or life insurance companies. They're not giving anything away. It's all contracts. It's life expectancy. They know when we're going to die, which is the reason they have the big buildings.

Okay, we've made it through that little comparison. Hey, do me a favor. There's another video I did, what annuities are commonly used for, and I go deeper than that PILL, Principal protection, Income for life, Legacy, and Long-term care acronym I use all the time. I encourage you to take a look at that one. It dovetails very well with this one that we just finished.

Now, a couple of things, a couple of little administrative points before we go, number one, go to our annuity calculators if you need quotes or if you want to interact with some experts there, including myself. I want you to be educated on your decision, and whether you're buying life insurance or annuities, you need to be educated. Don't just believe what the agent tells you. Always write down the sales pitch. Have them sign off on it. Ensure they're not pushing the limits on that sales pitch, and you're not buying just the sizzle. You're buying the steak. So, with that, I hope to see you next time!

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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