Significance

Life insurance provides a death benefit for your loved ones if you die. Annuities pay you a guaranteed income for life or a certain term while you are alive.

Function

Life insurance death benefit proceeds can support your family after your death. Annuities can provide retirement income after your individual retirement account (IRA) savings have been depleted or as part of your IRA portfolio.

Surrender

Permanent life insurance policies accrue cash values and can be surrenders, which occurs when you cancel the policy and take the cash values. Annuities can also be surrendered but you will get most of your premiums and possibly some of the growth.

Taxes

Life insurance proceeds are income tax free and sometimes estate tax free. Annuity proceeds are income tax free when it is a qualified annuity or a distribution from an annuity in an IRA. They are not estate tax free.

Types

Life insurance can pay out the guaranteed death benefits if death occurs after just one premium. Annuity payments are structured on many different criteria and could offer a series of payments after death (in a period certain or last survivor annuity) or just a death benefit.

Source:

EF Moody: Insurance versus Annuities

Annuity Library: Difference between Life and Annities