There is no one-size-fits-all answer, and what’s right for you is based on your specific retirement planning needs. When setting up your specific lifetime income stream, you need to factor in what happens to the money when you, the owner dies. So let me explain how to make sure your money ends up where you want it to - guaranteed.
There are annuities for income, annuities for interest rates, and annuities for long-term care, but only some have a standard death benefit. If you structure that policy life-only with a single-premium immediate annuity, there are no enhanced death benefits. However, you don't have to structure it that way. When I set people up with single-premium immediate annuities, we make it so that 100% of any unused money is paid to the beneficiary or beneficiaries.
So products like annuitized commodities, deferred income annuities, single-premium immediate annuities, and qualified longevity annuity contracts, all fall under the title of annuitized products create income streams. The death benefit to those policies is dependent upon how you structure it and how long before you die.
Now, multi-year guarantee annuities, fixed annuities, and variable annuities are all deferred annuities where the death benefits work is the accumulation value. With some variable annuities and index annuities, the death benefit could be attached to what's called an income rider, which is an attached benefit that is typically used for income. The death benefits are dependent upon the type of annuity that you choose and how you structure it at the time of application.
What happens to an annuity when someone dies depends on how that annuity was structured from the time of application, whether it's a single life, or whether it's joint life. If it is joint life with your spouse or partner and you die, then the annuity continues uninterrupted and unchanged for the rest of their life. So in all joint scenarios for the survivor, the annuity contract will continue for the rest of their life.
Suppose it is set up for single life, and you die. In that case, the listed annuity beneficiaries of that policy will have choices on how the death benefit is paid out, depending on the type of annuity. There isn’t a generalization that covers all annuities on what happens when someone dies. When it comes to a spouse, they can take it over because there's a continuation.
If you are a person that's inherited an annuity from someone who just passed and you don't know what to do, we will certainly work with you and in conjunction with your CPA and tax lawyer to make sure you're making a good decision.
The type of account it was in, whether it a non-qualified non-IRA account, and if it is an IRA account, all factor in. So it’s not an easy answer.
Some do, some don't. It depends on at the time of application how you want to structure it. An example of no benefits would be if you bought a single-premium immediate annuity and had the retirement income start 30 days from the policy being issued, you structured it life only, you die, and there are no beneficiaries. In that case, the money goes poof, and no one gets anything. However, you're going to get the highest payout because you're shouldering some of that risk.
Most people are going to have survivor benefits attached to the policy at the time of application. You can have a guaranteed lifetime income stream guarantee and still have survivor benefits, whether it's a single-premium immediate annuity, deferred income annuity, a qualified longevity annuity contract, or an income rider attached to a different annuity. If you die early in the policy and there is money left in the policy, it will go to the list of beneficiaries of the policy.
Now, with survivor benefits, joint-life annuities are great because there's a continuation of that income stream. Suppose you buy a single-premium immediate annuity that pays for life, and you get $2,000 a month, and you pass away. In that case, your spouse will continue to receive that $2,000 a month for the rest of their life regardless of how long they live completely uninterrupted and unchanged.
So what I would tell you to do is if you have any questions if you're thinking about structuring an annuity and you're not sure how to do it, but you want to make sure that it's done contractually correct, contact us at theannuityman.com where we can walk you through your annuity purchase options.