Life insurance vs. annuities: Which is better for seniors?

There are many financial tools that seniors can leverage. Some build wealth or provide income, while others offer protection for heirs or ensure that end-of-life costs are covered.

Life insurance and annuities are two common tools used by this cohort. With life insurance, you pay premiums now, and once you pass on, your beneficiary receives a death benefit they can use to cover your funeral, burial costs and any remaining debts you leave behind. In some cases, life insurance policies have cash values that you can tap later on.

Annuities are a type of investment that results in a steady stream of income payouts in retirement. You usually pay for this via a lump sum.

"Both are valuable financial products," says Stephen Kates, a certified financial planner and the principal financial analyst at Annuity.org. "But they're useful for very different reasons."

Not sure whether you should look to annuities or life insurance as you age? Below, we'll break down what some experts think.

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Life insurance vs. annuities: Which is better for seniors?

Here's how to tell when either product is beneficial, according to the experts we spoke to.

When life insurance is better for seniors

Life insurance is the best choice if you're looking out for your loved ones. It will give them funds to pay off your debts and handle your end-of-life expenses, and it could also ensure your spouse has the income needed to get by once you pass away. 

"Life insurance is primarily meant to protect others from financial hardship in the case of your untimely death," Kates says. "It's a very effective way to leave a legacy or cover final expenses such as burial costs, taxes, or other debts."

You also might look to life insurance if you already have a hefty retirement fund saved up or have access to a pension.

"Life insurance could be a better choice if the senior has sufficient assets to maintain their standard of living throughout their lifetime and can handle some fluctuation in the markets for their investment portfolio," says Jack Gates, vice president and advanced planning advisor at Rockland Trust in Hanover, Massachusetts. "Also, if the senior has a pension that provides a lifetime income through their employer — teachers, for example — then life insurance could be a better choice."

Some life insurance policies can also offer help with long-term care costs or disabilities, while others may allow you to withdraw from the policy's cash value. Just keep in mind that this will decrease the death benefit for your heirs once you pass.

See how much you could secure with a life insurance policy here now.

When annuities are better for seniors

Annuities are typically the best choice if you know you'll want (or need) a steady stream of income in retirement, experts say. So if your retirement savings are short or you know you won't have enough saved to support the lifestyle you're aiming for, annuities can help.

"Annuities are for the senior while they're alive," says Joel Russo, owner and retirement advisor at NJ Retirement Planning in Sea Girt, New Jersey. "What's left can go to a beneficiary, but while alive they can take advantage of all the benefits."

Annuities have also evolved significantly in recent years and come in a variety of forms, according to David Johnston, a certified financial planner and managing partner at Amwell Ridge Wealth Management in Flemington, New Jersey.

"Don't confuse today's annuity offerings with the one of yesteryear," Johnston says. "Today, annuities come in many flavors — from guaranteed income to systematic withdrawals to attractive growth options.  Odds are, if a retiree desires additional guaranteed income above and beyond their Social Security, some variety of an annuity will have a seat at the retirement income table."

Making the right choice

If you have the funds, you may be able to invest in both life insurance and annuities, but if not, consider talking to a financial advisor before deciding which to purchase. They can help you calculate your potential income needs in retirement, assess your current portfolio's progress, and recommend the right move for your long-term goal.