The phrase "life insurance annuity" is confusing because it isn't an actual type of financial product.

In most cases, people are combining two separate concepts:

• Life insurance, which is designed to provide a death benefit to beneficiaries.
• Annuities, which are designed to provide contractual guarantees such as principal protection, lifetime income, legacy planning, or certain long-term care solutions.

Although life insurance companies issue annuities, a life insurance annuity isn't a distinct product category.

Key Takeaways

• A "life insurance annuity" is not an official annuity product.
• Life insurance companies issue both life insurance policies and annuities.
• Life insurance primarily provides a death benefit, while annuities are designed to solve retirement income and other contractual objectives.
• Annuities generally solve four primary goals: Principal Protection, Income for Life, Legacy, and Long-Term Care.
• Understanding the purpose of each product helps determine which solution fits your financial goals.

Why the Term Causes Confusion

The phrase often appears because people know that life insurance companies sell annuities.

Since both products come from the same type of insurance company, it's easy to assume they're the same thing.

They're not.

Life insurance and annuities are separate financial products designed to solve different problems.

What Life Insurance Is Designed to Do

Life insurance primarily provides financial protection for your beneficiaries.

Depending on the policy, it may offer:

• a tax-advantaged death benefit
• financial protection for your family
• estate planning benefits
• business planning solutions

Permanent life insurance policies may also accumulate cash value, but the primary purpose of life insurance remains the death benefit.

What Annuities Are Designed to Do

Annuities are insurance contracts designed to provide specific contractual guarantees.

Rather than focusing on a death benefit, annuities typically solve one or more retirement objectives using the PILL framework:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

Different annuity types specialize in different guarantees.

The right product depends on the problem you're trying to solve.

Life Insurance Companies Issue Annuities

One reason the terminology becomes confusing is that nearly every annuity is issued by a life insurance company.

Insurance companies issue products such as:

• MYGAs
• Immediate Annuities
• Deferred Income Annuities
• QLACs
• Fixed Index Annuities
• Variable Annuities
• RILAs

Even though the issuing company is a life insurance company, the annuity itself is not life insurance.

Can Life Insurance Be Converted Into an Annuity?

In some situations, yes.

Certain permanent life insurance policies with accumulated cash value may be exchanged into an annuity using a 1035 exchange.

If completed properly, the exchange can generally occur without triggering immediate income taxes.

Whether an exchange is appropriate depends on your financial goals, the existing policy, and the contractual guarantees you're seeking.

Does Life Insurance Provide Lifetime Income?

Some permanent life insurance policies are marketed as providing lifetime income.

It's important to understand exactly how those policies work.

In many cases, the money accessed from the policy comes through policy loans, not guaranteed income payments.

That's different from an annuity specifically designed to provide contractual lifetime income.

Before relying on any retirement income strategy, understand how the payments are generated and whether they are contractually guaranteed.

Start With Your Financial Goal

Before choosing any insurance product, answer two questions:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

Those answers determine whether life insurance, an annuity, or another financial solution is most appropriate.

The objective should always drive the product selection—not the other way around.

Comparing Life Insurance and Annuities

Life insurance and annuities are both issued by life insurance companies, but they serve different purposes.

Life insurance is primarily designed to provide a death benefit and financially protect your beneficiaries. Some permanent policies may also accumulate cash value.

Annuities are designed to provide contractual guarantees, such as principal protection or guaranteed lifetime income, and are generally used to help solve retirement planning goals while you are alive.

Where to Compare Annuity Options

If you're considering whether an annuity fits your retirement goals, use our annuity calculators to compare contractual guarantees from multiple insurance companies.

Comparing carriers helps you identify the annuity that best addresses your specific retirement objective.

The Bottom Line

A life insurance annuity isn't a separate financial product. Instead, it's a phrase people often use when referring to annuities issued by life insurance companies or when comparing life insurance with annuities.

Life insurance is generally designed to provide a death benefit, while annuities are designed to deliver contractual guarantees such as Principal Protection, Income for Life, Legacy, and Long-Term Care.

The right choice depends on what you're trying to accomplish—not simply on the name of the product.

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