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birb_cromble  1mo ago (text post)   952 thread views

Weekly Finance Thread - 2026-06-13

A weekly thread to discuss financial matters - from personal all the way up to global.

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Can someone more knowledgeable than I am explain what the purpose of an annuity is? They seem like a fixed income investment bound together with a life insurance policy. Is that the whole point? Am I missing something that makes them more attractive than that?

Reo is partially right, but definitely needs some clarification:

Term Life insurance:

  • Is generally cheap (think more $300 a year, not $1000) but gets more expensive as the policy approaches EoL.
  • Is for covering unexpected premature death, but that's about it (basically get an amount that would cover your mortgage)
  • 97% of the time expires without use

Whole Life + whole life variants

  • More 'costly' in that a policy will be a more expensive monthly premium for less coverage
  • Is permanent, meaning that it will pay the death benefit to your family upon end of your life
  • Usually has a number of different riders and additions to be tailored to your needs
  • Turns into an 'owned' asset which you can take out loans against
  • There's a number of tax things as well

Annuity:

  • Is an insurance for when you're alive
  • Generally appreciates in value over time at a fixed rate and usually pays a guaranteed monthly payment starting at a certain period in your life.
  • Money added to the annuity grows tax deferred until annuitization (the time when annuities pay out a fixed income)
  • Can be tied to the market in various ways
  • While it can be used as an inheritance vehicle, if you die during annuitization, the insurance company usually keeps the leftovers (this is an incredible oversimplification. there's a lot of different ways an annuity can be structured which change the payout structure).
  • usually has a lot of fees, so be very careful about the annuity (though there is something called a 1035 exchange which allows you to replace an annuity to one that is a better offering).

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