Buying Life Insurance and Annuities in Massachusetts
Part One

Thinking About Buying Life Insurance Or An Annuity

Life Insurance policies and Annuity contracts are sold by life insurance companies. Both products have been developed to help people meet financial needs at the end of their lives. If you are not sure whether you need life insurance, or whether you should purchase an annuity

Should I Buy Life Insurance?

Life Insurance can help protect your family by replacing lost income or providing funds to pay outstanding bills or taxes in case of your death. Some life insurance policies will also pay you dividend or build up a sum of money from which you may take a loan.
Your need for life insurance can change over a lifetime. If you are thinking about life insurance as financial protection for your family in case of your death, here are some scenarios which show how needs may differ:
  • Single adults may not need much life insurance, unless they are single parents or support someone such as an elderly parent.
  • Working couples without children or dependent parents may not need much life insurance, if the surviving spouse is able to make a good income and there are no major debts to pay off.
  • Families (including single parent households) usually need life insurance because young children depend on their income. People with grown children are less likely to need life insurance. (If you are over 65 and your children are on their own, you might not need as much life insurance.)
Balancing Life Insurance with Health Insurance

People who do not have health insurance may find that some life insurance policies can also be tapped for funds for major health catastrophes. For example, some life insurance policies will offer "accelerated death benefits" which will pay some or all of the life insurance death benefit in cases of terminal illness, organ transplant, or permanent confinement to a nursing home. These benefits may not, however, provide as much protection as a long-term care insurance policy.

Should I Buy an Annuity?

An annuity can give you a regular income paid out over a period of time for retirement purposes. An annuity may also provide an income for another person, such as a surviving spouse.

An annuity is not a life insurance policy. Some annuities include a death benefit, others do not.

Annuities are not savings accounts. There may be restrictions or substantial charges if you take money out, particularly within the first 7-10 years. Annuities should not be bought for short-term purposes.

The money you can expect to receive in annuity benefit payments equals the money you have paid in plus the interest which your money has earned.

Many annuity sales "pitches" encourage you to move funds from maturing certificates of deposit into annuities. But these two ways to use your money are not the same. They have different purposes and time frames. Be sure you invest your money in a way that best suits your needs.

Are Life Insurance and Annuities a Better Idea than Putting My Money into Investments?

Every person's needs for insurance and retirement income are different, so there is no one correct answer to that question. However, there are several benefits to life insurance or an annuity that you might not get by investing your money in the stock market or mutual funds.
  • Your basic death benefits are not taxed. That means that if you buy a $50,000 life insurance policy, when you die, taxes will not be deducted from that amount.
  • If you have an annuity and choose a benefit option that covers you for life, you cannot "outlive your money". The risk the insurance company takes includes the possibility of paying your annuity for more years than they had planned, even though that may be much later than their statistics had predicted for someone of your age and health.

There have been many cases recently where consumers thought they were buying investments, or annuities, but found out later they actually bought life insurance. Life insurance is not the same as an annuity, and it is not the same as an investment. Make sure you know what you are buying and decide whether it meets your needs.

What are the Benefits of Life Insurance, Annuities, and Variable Annuities?

Term Life Insurance Cash Value Life Insurance Fixed Annuities Variable Life Insurance and Variable Life Annuities
Protection for your family in event of your death - from time of purchase.Protection for your family in event of your death - from time of purchase.Money saved for your retirement; may include life insurance.Various ways to invest your premiums, over which you have some control.
No interest or dividends earned.Taxes on interest and dividends earned are deferred, may be taxed if money is withdrawn.Taxes on interest earned are deferred, may be taxed if money is withdrawn.Taxes on interest earned is deferred, may be taxed if money is withdrawn.
No money available to support loans.Loans taken out of policy normally not taxed.Loans taken out of policy normally not taxed.You may be able to take a loan out against the value of the life insurance policy, or may be able to use value of the annuity as collateral for loans.
Short term commitment, but may be difficult or more expensive to buy insurance in later years.Long-term commitment required.Long-term commitment required.Long-term commitment required.
Insurance is for a fixed term. Once the term ends, you must renew, or lose your insurance. The insurer can choose not to renew your insurance.You may lose much of your money in surrender charges if you take the money out.You may lose much of your money in surrender charges if you take the money out.You may lose much of your money in surrender charges if you take the money out.

Part Two