Robin Hartill, CFP®, is a freelance writer who covers life, pet and homeowners insurance for NerdWallet. She holds a bachelor's degree in English from the University of Florida. With more than 15 years of writing and editing experience, Robin enjoys breaking down complex financial topics for readers to help them make smart decisions about money. She is based in St. Petersburg, Florida.
Reviewed by Tony Steuer Life insurance expert Tony Steuer
Life insurance expert | Life Insurance
Tony Steuer is a financial wellness advocate, podcaster and speaker, and the author of "Questions and Answers on Life Insurance." His advice has been featured in media outlets including The New York Times, The Washington Post, Fast Company, Forbes and CNBC. He has a bachelor of science degree in finance from California State University and holds the following designations: Chartered Life Underwriter (CLU), Life and Disability Insurance Analyst (LA) and Certified Personal and Family Finance Educator (CPFFE).
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Assistant Assigning Editor Katia Iervasi
Assistant Assigning Editor | Life insurance, disability insurance, health care
Katia Iervasi is an assistant assigning editor at NerdWallet. An insurance authority, she previously spent over six years covering insurance topics as a writer, where she loved untangling complicated topics and answering readers’ burning money questions. She holds a Bachelor of Arts in communication and has studied writing, fact-checking and editing with Poynter. Her writing and analysis has been featured in The Washington Post, Forbes, Yahoo, Entrepreneur, Best Company and FT Advisor. Originally from Sydney, Australia, Katia currently lives in New York City.
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A life insurance annuity pays out a policy’s death benefit in a series of installments, either for a set number of years or until the beneficiary dies.
If you opt for a life insurance annuity instead of a lump sum, the unpaid portion of the death benefit will earn interest. While life insurance payouts typically aren’t taxable, you will owe taxes on the interest earned on any life insurance annuity payments.
Not all companies offer life insurance annuities. If you’re a beneficiary, ask the insurer about payout options available to you when you file a life insurance claim .
Did you know.Even when a life insurance annuity is an option, many survivors opt for a lump sum payment because they need the money for immediate purposes, like funeral costs, income replacement or investments.
Life insurance annuities and life annuities are similar in that they both convert an upfront sum of money into a stream of income. But there are key differences.
A life annuity is a financial product you purchase to secure guaranteed income. It’s typically used as a retirement planning tool if you’re worried about running out of money.
With a life insurance annuity, you don’t pay money to the insurance company. When you choose a life insurance annuity, you’re basically converting a death benefit into a life annuity.
If you can’t choose a life insurance annuity as a beneficiary, you can still use your lump sum payment as a way to earn reliable income. For example, you could buy a fixed annuity, which would earn interest at a guaranteed fixed interest rate. You could also look into other fixed-income investments or work with a financial planner to create an investment portfolio based on your goals.
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