By insurance I am assuming you mean that your 403(b) plan offers variable annuity separate accounts as investment options inside your 403(b). Variable annuities are life insurance products in that, in their simplest form, the insurance company promises to pay your heirs at least the amount you invested in the variable annuity should you die when the value of your investment is lower than what you invested. There a separate fee charged, called Mortality Expenses (M&E), for this protection. The fee can range from 0.50% to 1.5% per year.
I’m not a fan of variable annuities inside 403(b) plans or any other tax deferred vehicle/account. I don’t believe that the insurance protection component of the investment is worthwhile inside a retirement account. If you have invested properly for your age you should not need the protection and the cost will eat into your retirement account balance. If you are younger you probably should be invested aggressively. In this case you should expect the investment market to decline temporarily many times during your investment time horizon. However if you believe the permanent market return trend is up then you expect the markets to recover with time. In other words you don’t need the insurance. Instead the insurance will cost you 18% of your account balance over 20 years if you earn 6% instead of 7% due to an additional 1% cost. Unlike the temporary market declines, this expense is permanent. If you are older and closer to retirement then you should be invested more conservatively and not need the insurance.
Variable annuities (and fixed annuities) do offer tax advantages. However you already have the same tax advantage with any investment you own inside your 403(b). Investments inside your 403(b) account will grow tax deferred until you withdraw from the account. Therefore there is no reason to pay extra for a variable annuity to achieve tax deferral since you have it in the first place.
If an annuity makes sense for you after you retire then you can purchase the annuity then by rolling your 403(b) balance into an IRA and then purchasing any annuity available on the market. In other words you are not passing up the opportunity to purchase an annuity if you choose not to do so inside your 403(b). Someone will be happy to sell you an annuity later.
This is actually a fairly complex topic and I’m suspect you will receive additional advice from my colleagues.
My answers are none and no.
Tying together life insurance and investment decisions just complicates the two issues. The 403b is investment, so invest the money directly in a suitably diversified portfolio of investments based on your age (more fixed income / guaranteed funds as you get older, more growth fare (stock funds) if you are younger.) As for life insurance, term life insurance is the best choice for most people, the details of which depend on your family situation and are best determined by a fee only financial planner who is NOT selling the insurance you need to buy! Yes, you pay him money - but you will avoid being sold more insurance than you need, or expensive products with bells and whistles you don't need - so the investment will pay for itself. And he/she can help you with those 403b options as well. Look on this site or at CFP board or NAPFA websites for an advisor in your area who will work for an hourly fee.
I'm in total agreement with everything that was said prior.
I feel like someone needs to play devil's advocate since this is a discussion site, so...
What if you can't get life insurance because your health won't let you qualify? Maybe having the life insurance that goes along with the annuity to at least guarantee the principal paid in might give some piece of mind.
I would argue that if you are trying to save for your retirement, you should try to do so, all things considered, with the most reasonable cost structure, and mutual funds would be a far less expensive cost structure than annuities or life insurance.
Here is another argument for not having life insurance in a 403(b). Life insurance, even death benefits of an annuity, if paid with pre-tax dollars, as it would be in a 403(b), should be subject to taxation on the death benefit. I would check to be sure this is correct in your specific instance.
Because no one is aggressively marketing the mutual funds, employees often are not aware that they are available. It is possible, but not probable, that your employer does not offer mutual funds, but I would call HR ask specifically if their plan does.