You name a beneficiary for your annuity. Most annuities will offer a variety of death benefits to choose from. Below is a brief summary of your options.
Immediate Annuity Death Benefits
When you choose an immediate annuity you have to choose the term of the annuity. The term designates whether payments will be for your life only, for a joint life span, and whether any remaining funds will be passed along to heirs or not.
Fixed Annuity Death Benefits
Most fixed annuity death benefits are simple; whatever the account is worth is what gets paid out upon death.
Variable Annuity Death Benefits
Variable annuity death benefits can be simple or you can upgrade your policy by purchasing riders that offer enhanced death benefit options.
Taxation Upon Death
Upon your death the person inheriting the annuity must pay income tax on any gain at their ordinary income tax rates. If they cash in an annuity with a large gain, it may push them into a higher tax bracket. (If a spouse continues the policy, then the annuity is not considered to be cashed in, so no taxes would apply in that situation.)
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