Annuity Death Benefits: What Happens When You Die?

What Happens to Your Annuity When You Die?

What your beneficiaries receive depends on your annuity type, payout option chosen, and whether you’ve added a death benefit rider. Here’s a complete breakdown.

During the Accumulation Phase (Before Income Starts)

For deferred annuities that haven’t been annuitized:

• Standard death benefit: Beneficiaries receive the greater of the account value or total premiums paid — they won’t receive less than what you put in
• Enhanced death benefit rider: Pays a higher amount, such as the highest account value ever reached, or account value plus a guaranteed minimum growth percentage
• Payment goes directly to named beneficiaries — avoids probate

During the Payout Phase — Options Matter

• Life only: Payments stop at death. Heirs receive nothing. Highest monthly payment.
• Life with period certain (e.g., 10 or 20 years): If you die before the period ends, payments continue to beneficiary for remaining years
• Joint and survivor: Payments continue to surviving spouse at 50%, 75%, or 100% of original amount
• Cash refund / installment refund: If you die before receiving your full premium back, the remainder goes to beneficiaries

Inherited Annuity Tax Rules

Beneficiaries who inherit annuities generally owe income tax on the gain. Key rules:

• Spouse beneficiaries can continue the contract as their own (spousal continuation)
• Non-spouse beneficiaries must generally take distributions within 10 years (post-SECURE Act)
• Inherited annuities do NOT receive a step-up in cost basis

Naming Beneficiaries

Always name both primary and contingent beneficiaries on your annuity. Keep these designations updated after life events (marriage, divorce, death of a beneficiary). Beneficiary designations override your will.