What happens to my annuity if I die?

A very common question for annuity buyers is “What happens to my annuity if I die?”

Many people still believe that the insurance company keeps all their money and nothing goes to the family.

That is not true at all and it’s a shame that these old thoughts still persist.

Keep It Simple Answer: There are lots of variables, so it’s tough to give one simple answer. Let’s go through it.

Immediate Annuities

When you deposit money into an immediate annuity you are exchanging that lump sum of money for monthly payments. You give up control of the lump sum and in exchange you get income for the rest of you life (or a period certain)

So let’s look at how this will play out if you die early

  • If you purchase a Life Only immediate annuity, the payments will stop upon your death. Also, there will be no payments to your beneficiaries. This option gives you the highest monthly payment, but the negative is that if you get hit by a bus tomorrow, all payments stop.
  • If you purchase a life with a period certain (ie life with a 20 year period certain) You will get payments for the rest of your life and if you die early, your beneficiaries will continue to get the payments until the 20 year period is up. The payments with this option are less than life only, but you know that someone will get money for at least 20 years.
  • If you purchase a period certain only immediate annuity (ie 20 year period certain) then either you or your beneficiaries get the payments for 20 years exactly. It is not a lifetime income, only for a period certain.

Fixed Rate Annuity

Let’s say you purchase a 5 year fixed rate annuity that is paying a 3% fixed rate of interest (for example).

Here are some possible options if you die early

  • Your spouse can continue the contract as is
  • Your spouse could receive the death benefit payout (as a lump sum or payments)
  • If it’s an IRA annuity your spouse can rename it as their IRA and keep it’s tax deferred status
  • If your primary beneficiary is also deceased then the death benefit amount will pass to the contingent beneficiaries

Indexed Annuity or Hybrid Annuity

If you just purchase an Indexed annuity without any riders, the options if you die early will be the same and the Fixed Rate Annuity above

If you you add an income rider here’s what can happen

  • If you have not started payments under the income rider yet, in general your spouse can inherit the contract, and then have the option to get payments under the rider using their own age
  • If you have started payments and you chose “Joint” income for life, then your surviing spouse will continue to get the monthly checks for as long as they live
  • If you chose “Single” life option under the rider, the payments will continue to your spouse until the account balance is zero and then the income will stop

As you can see there are lots of options with annuities. They are pretty simple and spelled out in the contract. If you are confused at all ask your agent or the insurance company.

So if you are wondering “What happens to my annuity if I die?” hopefully this answered your questions.

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