How Do You Know If An Annuity Has a Death Benefit?

Shawn Plummer

CEO, The Annuity Expert

In today’s world, financial planning has become more critical than ever. For many, annuities are a cornerstone of that planning, offering both stability and growth potential. But a question frequently emerges: How do you know if an annuity has a death benefit? Understanding this is crucial, especially when considering your loved ones and their financial futures. Let’s break this down step by step.

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Recognizing the Death Benefit Feature

Most annuities have a death benefit if there’s money left in the account balance. If the annuitant (who owns the annuity) passes away before exhausting the funds, the remaining balance can be passed on to a named beneficiary.

Example: In Susan’s case, if she passes away five years into her annuity (without starting the monthly payments), the remaining balance of her initial investment can be passed on to her beneficiary.

Exceptions to the Rule: Few Annuities Without Death Benefits

While most annuities come with a death benefit, it’s crucial to recognize that few annuity contracts do not offer one. Always read the contract details carefully or consult with a financial advisor.

Example: John invests in an annuity, but unfortunately, his specific contract doesn’t have a death benefit clause. Upon his passing, any remaining funds in the annuity revert to the insurance company rather than going to his beneficiaries.

How to Identify the Death Benefit Clause in Your Contract

  • Read the Fine Print: The contract will explicitly state whether there’s a death benefit. Look for sections labeled “death benefit,” “beneficiary benefits,” or similar headings.
    • Example: On page 12 of Mark’s annuity contract, the section “Beneficiary Benefits” outlines how the death benefit will be calculated and paid out.
  • Ask Your Financial Advisor: If in doubt, always consult with a professional. They can provide guidance and clarity on the specifics of your contract.
    • Example: Samantha is unsure about the clauses in her contract. She schedules an appointment with her financial advisor, who confirms that her annuity comes with a death benefit.

The Value of The Death Benefit

Remember, the death benefit is typically the amount left in the account balance. However, some annuities might offer an enhanced death benefit for an additional fee, which may guarantee a higher payout or factor in market gains.

Example: David’s annuity has an enhanced death benefit. Even though the market has been volatile and the account balance is currently at $180,000, from an initial investment of $200,000, his beneficiaries will still receive a minimum of $200,000 upon his death.

Next Steps

Annuities can be a valuable component of a well-rounded financial plan. Understanding the intricacies, especially regarding benefits upon death, is essential for ensuring that your investment serves you and your loved ones best. While most annuities have a death benefit if there’s money left in the account balance, always make it a practice to verify and understand your specific contract details. Ultimately, it’s about securing peace of mind and financial stability for those you care about most.

How Do You Know If An Annuity Has A Death Benefit

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Frequently Asked Questions

How do I avoid taxes on an annuity death benefit?

Avoiding taxes on an annuity death benefit is complex and depends on various factors like ownership structure and beneficiary types. Consulting a tax advisor is crucial. Strategies may include spousal continuation or using the annuity to fund a tax-advantaged trust. Always consult professionals for personalized advice.

Which type of annuity stops all payments upon the death of an annuitant?

A life-only or “straight life” annuity stops all payments upon the annuitant’s death. This option provides the highest periodic payment but offers no death benefits or payments to beneficiaries after the annuitant’s death.

Is annuity death benefit the same as life insurance?

An annuity death benefit and life insurance are not the same. Life insurance provides a tax-free lump sum to beneficiaries upon the insured’s death, often without any investment component. An annuity death benefit typically pertains to distributing the remaining or guaranteed annuity funds and may be subject to taxes. Both aim to financially protect beneficiaries but serve different purposes.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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