4 Helpful Facts about Annuity Death Benefits
67If you are a contract owner or beneficiary of an annuity death benefit, you should know the nature of the annuity death benefit, the two options to claim the benefits, the policy upgrade, and when beneficiaries can choose pay the benefits’ tax.
Annuity death benefits are given to the annuitant or contract owner’s beneficiaries in the event he or she dies and if they still did not use the full contract funds when they passed away. Considering annuity death benefit’s complicated processes, the insurance company should provide contract owners as well as Annuity Insurance Leads enough information on how it works. Here some helpful facts about annuity death benefits:
The nature of the annuity death benefit will vary on the type of annuity you purchased
Like other annuity benefits, the nature of annuity death benefits varies depending on what type of annuity you’ve purchased. You should know that annuities come in two types – immediate and deferred. With immediate annuity, the policy holder or annuitant receives the annuity payments immediately after he or she had completely paid the premium. The beneficiaries of the annuity will receive the benefits once the annuitant dies. However, they will only receive the remaining money left of the full contract value. On the other hand, if the annuity is deferred, there is a specific date when payments will be given. Usually, payments are given after a few years and the funds will earn interest. If the annuitant dies before the payment start date, his or her beneficiaries will receive the benefits.
There are two options to claim the benefits
Your beneficiaries will receive the annuity death benefits when you die and they can be claimed in two ways. They could either accept the benefits as a lump sum, or receive the payments over time or as income payments. If they choose the latter option, they will receive the benefits for a specific number of years or throughout their lifetime; however, this will also depend on the policy agreement.
You can increase the annuity death benefit by upgrading the policy
When you buy an annuity, you are only paying for the basic elements of the policy including the annuity’s payment structure. However, you have the option to purchase contract add-ons or also termed as “riders.” You can choose different add-ons for your annuity like additional protection for your annuity and even additional death benefits. Adding a death benefit rider to your annuity does not only provide you with financial assistance when you retire, but it will also cover funeral expenses at the time of your death as well as provide additional benefits to your beneficiaries.
Beneficiaries can choose when to pay the benefits’ tax
Since annuity death benefits can be taxable, their beneficiaries are liable to pay the inheritance’s tax. However, it’s up to them to decide when to pay for the taxes and this would likely depend on how they will claim the benefits. When they choose to receive the death benefits as a lump sum, they will have to pay all the tax upon claiming the payments. However, if they choose to go for electing payments, the amount of tax they will pay for any given year may decrease. This is because not all payments are considered taxable since a part of the payment are considered investment gain and return of principal.
Beneficiaries of annuity death benefits should consider consulting an attorney or account to know more about their tax responsibilities when claiming the benefits.
