What Happens to My Annuity After I Die?

Annuities allow you to designate beneficiaries, but the payouts or benefits they receive depend on the wording in the contract, and can vary greatly.

Annuities, even if they are designated as Individual IRAs or qualified accounts, can have joint annuitants. This way, if an income stream has been elected that is joint-life, then your beneficiary, whether a spouse or even a younger family member, will continue to receive payments for life. These options can all be elected at purchase.

If a joint life option was not elected, then the amount which goes to beneficiaries will depend on how much of the principal amount or the balance that pertains to the death benefit is left.

In the case of a single-life income annuity, or variable product using a guaranteed withdrawal benefit, the income payments will decrease the death benefit available by reducing the principal amount to the point where there may be no death benefit left, but the annuity will continue to pay income to the annuitant until he or she dies.

Some annuities have death benefit riders that may give your beneficiaries more than was actually in your account at the time you passed away. This can be a selling point for an older person looking at variable annuities.

If they invest a lump sum one year, and the market tanks the next, and they die while it is down, a variable annuity may be one of the only investment vehicles that will pay beneficiaries the amount of the initial investment, at least.

Some will also offer a high-water-mark type of death benefit, where the investor can periodically or automatically reset the death benefit to a higher amount if the account balance reaches new heights.

Bear in mind that the insurer will be charging fees within the annuity that will allow them to pay these benefits out when they are obligated to. Still, some older investors prefer the peace of mind it give them as opposed to naked market exposure. In some cases, annuities can be the best way to pass assets on.

Income to a survivor from a joint annuity will provide income while not includable as a lump sum asset for Medicaid eligibility. There may also be instances where the income payments satisfy RMDs or cannot be adjusted to be higher RMD amounts, thereby preserving money longer.

Should I Hold an Annuity Within My IRA?
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