Avoiding Disaster: How to Build Your Annuity

By Anna Neiger, InsuranceAgents.com Writing Team

Make Sure You’ve Structured Your Annuity Correctly To Thwart The Unexpected

An annuity can benefit more than just one person. You, the owner, can name an annuitant and beneficiaries of your annuity. You have a lot of control over what happens to your annuity after you pass on. The following steps will help you structure your annuity so the right assets go to the right people. To compare rates on an annuity, use our online form to get up to five offers.

Name Names

You must name the key participants of your annuity in your contract, almost like you’re drawing a will. No one can read your mind, and assumptions will not be made. So make sure you’ve provided for your loved ones by specifically naming the key participants, because the annuity contract is legally binding.

There are four main roles that you’ll need to fill in your annuity contract.

1. Contract owner. This would be you. You take out the annuity; you decide what goes where and to whom. You are the Big Cheese. There can be joint contract owners, also: Big Cheeses, so to speak.
2. Annuitant. If you decide to turn your annuity into income (after you retire, for example), the annuitant’s life expectancy is factored into the payments made from the annuity. An annuitant is often the contract owner, or a spouse of the contract owner. There can also be joint annuitants. 
3. Contract owner’s beneficiary. This annuity role receives the accumulated value of the annuity, which is the initial premium plus interest minus any fees or withdrawals made from the annuity at the time of the contract owner’s passing.
4. Annuitant’s beneficiary. This person receives something called a “death benefit,” which could be the same as the accumulated value or it could be a different amount, but it is usually predetermined at the time you sign your annuity contract.

Think carefully about these roles, and be specific about who you want to fill them. You can never be sure what the future holds, and if disaster should strike, you want your annuity to go to the right people.

Annuitant-Driven Contracts vs. Owner-Driven Contracts

There is a very subtle difference between these two types of annuity contracts, but that means it could be easily missed. Before signing, find out which annuity contract you’ve got.

• Annuitant-Driven Contracts insure that the annuitant’s beneficiary receives the “death benefit” when the annuitant passes. When the owner passes, the owner’s beneficiary receives the “contract value,” which could be less than the “death benefit.”
• Owner-Driven Contracts insure that the owner’s beneficiary receives the “death benefit” in the event of the owner’s passing.

Either one of these contracts could be right for you. Make your decision carefully, and be sure to fully understand the differences. Ask as many questions as you need to.

Understand “Death Benefits”

Death benefits guarantee that, if your assets should outlive you, your annuity insurance company will pay out at least the original amount of your annuity. There are a few different kinds of death benefits you can opt for, but some may come with an added fee.

• Standard Death Benefit. This is the “least generous” annuity option, but generally comes without any extra fees. It could be fixed as soon as your insurance company receives proof of the owner or annuitant’s passing, or it could fluctuate until one of the named annuity beneficiaries files a claim.
• Return of Premium Death Benefit. In this case, the annuity contract offers your annuity beneficiaries either the contract’s current market value or the sum of all the annuity contributions (like interest on the annuity), whichever one is a larger amount. This one usually comes with a fee.
• Stepped-Up Death Benefit. With this option, the insurance company monitors and records your annuity contract’s balance annually on the purchase date. Your annuity beneficiary will receive the highest of those annual values. This option comes with a fee.

Considering what will happen with your annuity if you pass away before the payout date is never fun—no one likes to think about their mortality. But understanding the different death benefit options and how they work will insure that you make the right choice for those you leave behind. To compare annuities, use our quick form to get up to 5 quotes from different local agents.
 

Published: Tuesday 19th May 2009