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What Happens When an Annuity Owner Dies Before Annuitization?

Stan Haithcock
March 21, 2024
What Happens When an Annuity Owner Dies Before Annuitization?

So, what happens when an annuity owner dies before annuitization? It's a sad thought. Hi, I'm Stan the Annuity Man. Typically I'm bouncing off the walls, I'm happy, but we're talking about death, so I'm just going to bring it down a little bit. Yes, I'm America's annuity agent; yes, I'm licensed in all 50 states, and yes, I'm holding flowers. Why? Because you're dead. You have to find out what happens when you're dead to your annuity. We're going to cover that. I will offer this. I will fly in, and I will sing at your funeral acapella. It would be beautiful. I have a great voice. I really don't, but I'd love to do that. I digress, and I'm now happy, and you know why I'm now happy? Because you're not dead yet. You're reading this blog, which is great. So, what happens when an annuity owner dies before annuitization? We're going to find out now.

‌What happens if you die before the annuity has been fully paid? What happens if the annuitant dies before the annuity start date? All those questions and more will be covered in this blog.


‌Let's talk about the definition of annuitization. Annuitization, think of when you were growing up as a kid and you had a water faucet at the back porch or something of your home, and you turn on the water and the water flows. Think about ripping the knob off that water faucet and the water is just going to flow. That is, in essence, the visualization of annuitization. Annuitization is an irrevocable lifetime income stream.


‌It's important to remember that annuities are contracts. Remember that. In fact, I don't even call them investments. I call them contracts. Why? Because you'll get a policy in the mail when you buy one, which is a contract. Now, when you set up your annuity at the time of application, of course, my team is going to take care of all of that from start to finish, but one of the questions they're going to ask you is, "Who do you want to list as the beneficiary of the policy if something happens to you? If your Learjet hits the mountain, Ferrari hits the tree, Bentley flips over, what happens?" I don't know if you have that, I don't have that, but when you die, what happens to the money?

‌Well, the beneficiaries must be in place, and you can put a spouse, a non-spouse, your children, grandchildren, a trust, or a charity. It would help if you thought about these things when setting up that annuity structure. Now, obviously, we will walk you through all of that and answer all your questions about how to structure primary or secondary-type beneficiaries, but just understand that when you sign the paperwork for that annuity contract, we're going to need to list the policy's beneficiaries.

‌Hey, just a thought. Because you might be thinking about setting up beneficiaries, you should share this blog with your potential beneficiaries unless they've made you mad. Then you don't send it to them. But if they're still in good standing with you, I'd let them know about it.

‌Annuity Types

‌What really happens depends on the contractual guarantees of that specific policy. Single Premium Immediate Annuities, Deferred Income Annuities, and Qualified Longevity Annuity Contracts are annuitization structures. So, it comes down to how you structured that lifetime income or period-certain income at the time of application. Just remember with those products, there's a myriad of ways to set them up. Deferred Annuities, like Multi-Year Guaranteed Annuities and Fixed Index Annuities, typically have a full cash value on death to the beneficiaries.

‌Remember, annuities are contracts, and when you die, some annuities will pay out the full value to your beneficiaries, and some will pay out the surrender value. This is important to know, and it's something that you and I need to talk about.

‌Spousal Versus Non-Spousal

‌Let's talk about spousal versus non-spousal options when they're listed as beneficiaries. Suppose the spouse is the primary beneficiary, the sole beneficiary of the policy. In that case, they can continue that policy as is, but they also have all the other choices a beneficiary has when you pass away. Understand that, talk to your husband and/or wife wherever that's applicable and say, "Hey, if I die and you are the primary beneficiary, you get to continue the policy if you want to do that, or you can take advantage of the other beneficiary choices that are available."

‌The choices for non-spousal beneficiaries are as follows. Number one, you could take the lump sum death benefit. Number two, you can take that death benefit over a five-year time period. In a non-IRA, you can get a lifetime income stream if you want to, and in an IRA, you can take that income stream over a 10-year time period. I know that's a lot, so let me do it again. Here are the four choices. You can take the death benefit lump sum, or you can take the death benefit spread out over a five-year time period, or in a non-IRA setting, you can take a lifetime income, and the final choice is in an IRA setting, you can lengthen those payments out 10 years.

‌Wasn't that fun talking about death? Yes, I have new flowers for your arrangement. The good news is you're still alive. I'm glad you joined us for this blog. It was a lot of fun. Just remember this stat, one out of one of us is going to die, and that's pretty good odds. With that being said, please visit The Annuity Man. You have three things to do there. Number one, get my books. They're free. Just click on the link to download them. No one's going to show up at your door; no one's going to call you. Number two, use the annuity calculators. You can run your own quotes, see live feed, all kinds of stuff. Number three, most importantly, schedule a call with yours truly, Stan The Annuity Man, Stan The Flower Man. Schedule that call. You and I will talk one-on-one about your specific situation, and I will help you. See you on the following Stan The Annuity Man blog.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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