One of the most important — and most misunderstood — aspects of annuities is what happens to the money when you die. The answer depends on the type of annuity, whether you’ve started taking income, and how your beneficiaries are designated.
Before Annuitization (Accumulation Phase)
If you die before converting your annuity to an income stream, your named beneficiaries receive the contract’s account value — or a guaranteed minimum death benefit if greater. This transfer happens outside of probate, directly to the named beneficiary, similar to a life insurance payout or IRA beneficiary designation.
After Annuitization
If you’ve elected a life-only payout option and die, payments stop immediately with no residual value passed to heirs. This is why most people choose life with period certain or joint and survivor payout options instead — these protect against dying shortly after income begins.
With a GLWB Income Rider
If your annuity has a Guaranteed Lifetime Withdrawal Benefit rider, the remaining account value (not the income base) passes to beneficiaries at death. This is a key advantage over traditional annuitization — you receive guaranteed lifetime income while still preserving a death benefit for your heirs.
Beneficiary Designations
Naming a beneficiary on your annuity is essential. Without one, the contract may pass through your estate, losing the probate-bypass advantage and potentially delaying distribution. Review your beneficiary designations any time you experience a major life change — marriage, divorce, or the death of a previously named beneficiary.
Rules for Inherited Annuities
A surviving spouse can continue the contract as their own or roll it into their own IRA annuity. Non-spouse beneficiaries generally must fully distribute an inherited annuity within 10 years and pay income tax on the earnings portion of distributions.
Call us at 1-888-972-0024 to make sure your annuity beneficiary designations are correctly set up.