What Happens to an Annuity When You Die?

When an annuity’s owner or annuitant dies, the contract pays a death benefit to the named beneficiary. This death benefit could represent the remaining value of the contract or it could be a guaranteed amount. If the owner’s spouse is the beneficiary, the spouse can choose to become the new annuitant and receive payments after the owner’s death.

Headshot of Jennifer Schell, writer for Annuity.org
  • Written By
    Jennifer Schell, CAS®

    Jennifer Schell, CAS®

    Financial Writer, Certified Annuity Specialist®

    Jennifer Schell is a professional writer focused on demystifying annuities and other financial topics including banking, financial advising and insurance. She is proud to be a member of the National Association for Fixed Annuities (NAFA) as well as the National Association of Insurance and Financial Advisors (NAIFA).

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    and
    Elaine King, MBA, CFP®, CDFA™, CFBA, ACC

    Elaine King, MBA, CFP®, CDFA™, CFBA, ACC

    Founder of Family and Money Matters™

    Elaine King, CFP®, founder of Family and Money Matters™, empowers families' financial and human capital for wellbeing. She's crafted actionable plans for 1,200+ families and 100+ enterprises. A recognized financial education advocate, creator of LATAM's first family financial program and winner of the Best Latin book award. Featured in top publications and honored by Investopedia and People Magazine.

    Read More
  • Edited By
    Lamia Chowdhury
    Headshot of Lamia Chowdhury, editor for Annuity.org

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Annuity.org. Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

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  • Financially Reviewed By
    John Stevenson, CFF
    John Stevenson, Owner and Advisor at Stevenson Retirement Solutions

    John Stevenson, CFF

    Owner and Advisor at Stevenson Retirement Solutions

    John Stevenson, a Certified Financial Fiduciary®️, specializes in securing retirements with tax-free accounts. With a focus on guaranteed retirement, he's ensured none of his clients suffer from market fluctuations. As a renowned educator and podcast host, John empowers thousands weekly, sharing his expertise in minimizing taxes and protecting against financial downturns.

    • Certified Financial Fiduciary®️
    • Host of the popular Guaranteed Retirement podcast and YouTube channel
    • Studied Finance and Business

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  • Updated: May 23, 2024
  • 4 min read time
  • This page features 2 Cited Research Articles

Key Takeaways

  • Upon the death of an annuity’s owner or annuitant, the annuity’s beneficiary receives a death benefit.
  • Beneficiaries can usually choose three options for receiving the inherited annuity: they can take a lump sum, receive payments based on their life expectancy or make incremental withdrawals over five years.
  • When choosing a beneficiary, annuity owners should consider factors such as the beneficiary’s age, their relationship to the owner and whether the beneficiary receives government benefits.

In general, annuity payments end after the death of the annuity owner. If the annuity has a death benefit, the owner can designate a beneficiary to receive a payout.

Depending on the terms of the contract, the death benefit could be a guaranteed minimum amount, the remaining value of the annuity contract, or the greater of the two.

Inherited Annuity Payout Options

Beneficiaries inheriting an annuity typically have three options for how to receive annuity payments after the contract owner’s death. 

“It is important to name a beneficiary on your annuity so that the remainder can go to whom you would like it to at your death,” Kendall Meade, Certified Financial Planner® professional at SoFi, told Annuity.org. “Sometimes your monthly amount will continue to your beneficiary for their life, sometimes it may be for a specific amount of time and other times they may get a lump sum.”

Infographic showing the different types of annuity payout options
Lump-Sum Distribution
A lump-sum distribution allows the beneficiary to receive the entire remaining value of the contract in one payment.
Non-Qualified Stretch Provision
When a non-qualified stretch provision is included in the contract, the beneficiary receives payments based on his or her life expectancy.
Five-Year Rule
The five-year rule allows beneficiaries to withdraw incremental amounts during a five-year period or withdraw the entire sum in the fifth year.
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How soon are you retiring?

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What is your goal for purchasing an annuity?

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Considerations for Annuity Owners

When thinking about what will happen to your annuity after you die, consider your options for controlling how the funds will be distributed. 

For example, you might prefer that your beneficiary receives a stream of income from your annuity rather than a lump-sum payout. In that case, you might consider a period certain annuity, which guarantees payments for a certain number of years. If you pass away before the guarantee period elapses, your beneficiary receives payments for the remaining years.

Most importantly, you’ll have to consider who to name as your annuity’s beneficiary. Keep in mind that minors cannot access the funds in an annuity until they turn 18. 

Additionally, if your beneficiary receives government benefits, the income they inherit from an annuity might disqualify them from receiving those benefits.

Your beneficiary’s relationship to you also affects how they can receive the inherited annuity. Spouses who are named as the beneficiary on an annuity have more privileges and options for what to do with the annuity than non-spouse beneficiaries have. 

Spousal beneficiaries can choose to put the annuity contract in their name and become the new annuitant. This change-over is called spousal continuation. Non-spouse beneficiaries don’t have a continuation option, they can only receive the death benefit payout, be it as a lump sum or an income stream.

Case Study

Here is an example of how an annuity might pass on income to a beneficiary after the owner’s death.

icon of a woman

Name: Vivian

Age: 70

Looking to Invest: $100,000

  • Vivian wants guaranteed income that she won’t outlive.
  • She wants the remainder of her savings to do to her daughter after her passing.
  • Vivian wants her daughter’s inheritance to be distributed as regular payments rather than a lump sum.

Best Option: Immediate Life Annuity with 20-Year Period Certain

Vivian will receive guaranteed payments for the rest of her lifetime. If she passes away before the 20-year term is up, her beneficiary will receive however many years of payments are left.

Purchasing an annuity with a period certain rider is one way to leave income payments to a beneficiary while setting yourself up for guaranteed lifetime income.

“You’re defining a certain number of years of payments taking place,” said Stephen Kates, Annuity.org expert contributor and Certified Financial Planner™ professional. “If you outlive that, then you get lifetime payments. But if you don’t outlive that, your beneficiaries will receive the difference between how long you were alive and the end of that period.”

In the case study above, Vivian is looking for a way to turn her savings into guaranteed income for life. She also wants to leave some income for her beneficiary. 

If in this scenario, Vivian passes away after 12 years of receiving payments, her daughter will receive the remaining eight years of annuity payments.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: May 23, 2024
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