What Happens To An Annuity When You Die?

What happens to an annuity when you die? First of all, you're dead. Who cares? But that's not a good answer, is it? I don’t think that’s why you’re here. First, a little fun. Have you ever been to a Waffle House? No? That tells me we're not in the South, and that’s a shame. If you’ve ever driven I-95 or anywhere south of Texas, you’ve probably been to a Waffle House. It’s an institution! It’s the number one egg seller in the country, by the way. I know you’re saying, “Stan, get to the point,” but this is important. Waffle House is the greatest place for waffles of all time.

Here’s a good story: when my kids were little, I would take them to a Waffle House on their birthdays and make the truckers sing "Happy Birthday" to them. I’m sure they hated me for it at the time, but they love that memory now. It’s one of the reasons I rock the Team Waffle House shirt!

But, back to the serious stuff—let’s talk about what happens to an annuity when you die.

Annuities and Death: What You Need to Know

Alright, I went off on a tangent, but hey—annuity talk can be a bit boring, and when it’s about death, well, that’s even tougher. But what happens to your annuity when you die? It depends on the type of annuity and how it’s structured. Let’s go through the types and discuss what happens if you die.

I always tell my wife and kids that they’re all set when I die. I have life insurance and annuity payments set up for them. When my Learjet crashes—wait, I don’t have a Learjet. But, hey, with no one else on the plane, flying now feels like you have your own private jet, right?

Okay, I digress. You're dying, and you have an annuity. What happens?

Types of Annuities and What Happens When You Die

Let’s start with Immediate Annuities, Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), and Qualified Longevity Annuity Contracts (QLACs). These are all annuitized products, which means they create a lifetime income stream. You can also set them up for a period certain or a combination of both. The key point is that these are customizable.

Now, what does this mean, Stan The Annuity Man, America's annuity agent? Well, it means you can structure the annuity so the "evil" annuity company will never keep a penny, regardless of how long you live. People always tell me, “I’d never buy an annuity, Stan, because when I die, the company keeps the money.” Well, that's a myth! Most annuities are customizable, so the remaining funds go to your beneficiaries when you die. In fact, that’s how most people want it. They worked hard for their money and don’t want it to go to the annuity company.

But you can also opt for the "life only" option. If you choose that, the annuity company keeps the money after you die. That gives you the highest payout, but you need to be okay with your beneficiaries getting nothing. If you hate your kids, go for it. Otherwise, there are other options where the remaining funds go to your beneficiaries.

Lifetime Income Stream with Annuitized Products

With any lifetime income stream, you’re getting a combination of return of principal plus interest. Yes, you’re getting your money back with interest, but the annuity company is on the hook to pay for the rest of your life. So, that’s a good thing.

Let’s continue our conversation about other types of annuities. Let’s talk about Income Riders. These are attached to products like Variable Annuities or Indexed Annuities. Remember, Income riders provide a lifetime income stream you can never outlive.

Now, on one side of the equation, you’ve got the annuity's accumulation value—this is the "investment" portion. On the other side, you’ve got the Income Rider portion, which guarantees a lifetime income. Whatever’s left in the accumulation value goes to your beneficiaries when you die. So, just like with the annuitized products, the "evil" annuity company does not keep a penny.

Multi-Year Guarantee Annuities: What Happens When You Die

What about a Multi-Year Guarantee Annuity (MYGA)? These are the annuity industry’s version of a CD. If you die, the money left in the annuity, plus whatever interest it’s earned, will go to your beneficiaries, provided you haven’t been withdrawing that interest monthly. Again, no evil annuity company keeps your money.

The only exception is if you have a life-only annuity, in which case, the company would keep any remaining funds. But in 99% of the cases, your beneficiaries will receive the remaining balance.

Conclusion: Structuring Your Annuity for Your Beneficiaries

I know we’ve been talking about a morbid topic, but it’s important to understand how an annuity works when you die. I've got you covered if you’re unsure how to structure your annuity to ensure your beneficiaries get the money. There are many ways to set it up, so your loved ones are cared for.

Make sure to go to The Annuity Man to get the best quotes on all carriers and all products using my proprietary annuity calculator. You can also download my seven books on the subject for free.

With that being said, I’ll see you on the following Stan The Annuity Man blog.