In many senses, one can say that an annuity is the reverse of a life insurance policy. While life insurance insures you against the risk of your dying, an annuity protects you against the risk of your living too long. The risk associated with living long enough is an end to continuing source of income during and after retirement. In a life insurance agreement, there is a risk to the insurance company that the person insured may die earlier; thus leading to the company to pay out entire money for insurance. In the case of an annuity, the major risk is slightly different. It is that the person may live a very long life — requiring continuous payments for life. Often this may be much larger than what the company got as principle amount from the client.

In other words, the annuities assure you a steady income for life, while life insurance ensures a payment on death. Subsequently in annuities, if you haven’t chosen the right option, your beneficiaries can loose money if you die during your annuity payment period. Each has their advantages and disadvantages. It is best to combine your investment into a judicious mix of different financial instruments. Buying an annuity only from a financially strong insurance company is a common trend. Such a company is more likely to be able to pay its obligations than others. With life insurances, the risk of annuities is spread over many people who have such contracts and hence the return is more guaranteed. This makes it easier to predict its risk for cases of life insurance.

When certain annuities are designed to work as life insurances once you die, it can be strong option for the customers. Such annuities allow lower payment and higher interests, since you wish to transfer the repayment benefit primarily to a nominee after your death. Annuities are useful to investors also because of their tax deferred status, their high rate of return, faster growth to savings, and finally, the security of the a steady income after retirement.

Annuities can be advantageous and popular not only because of the proven track record of repayment during your lifetime but also because of the increase rate of return than most other financial instruments. It is important to analyze your need for an annuity and the type of annuity that will perform well for you, before you buy one, as there are more risks involved in the entire contract than a general life insurance.

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