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Retirement planning: 6 things to know about choosing an annuity beneficiary

An annuity is a financial vehicle designed to help you accumulate money for retirement, protect what you’ve saved or turn your retirement savings into an income stream. Not only is an annuity an excellent product for creating a predictable cash flow for the life of your retirement, but it can also help you leave a financial legacy for your loved ones.

That’s because when you purchase an annuity from an insurance company, you choose a beneficiary in the contract’s death benefit provision. The beneficiary is the person, people or entity who will receive the money from your annuity when you pass away. Choosing an annuity beneficiary is an important part of retirement planning because it can help ensure the financial security of your loved one after you’re gone, or help you transfer generational wealth.

Here are 6 things you should know about choosing an annuity beneficiary:

1. Make a selection:

It’s essential to name a beneficiary in your annuity’s contract terms, such as a spouse, partner, child, another loved one or a charity. You will have the option to name multiple beneficiaries and a contingent beneficiary (someone designated to receive the money if the primary beneficiary dies before you). If you don’t name a beneficiary, the accumulated assets could be surrendered to a financial institution upon your death.

2. Understand financial consequences:

It’s important to be aware of any financial consequences your beneficiary might face by inheriting your annuity. Here are a couple examples to consider:

    • Spousal beneficiaries often have more options and privileges than non-spouse beneficiaries. For example, your spouse could have the option to change the annuity contract to their name and become the new annuitant (known as a spousal continuation). Non-spouse beneficiaries can’t continue the annuity; they can only access the designated funds.
    • Minors can’t access an inherited annuity until they turn 18.
    • Annuity proceeds could exclude someone from receiving government benefits.
3. Avoid probate:

An annuity is usually considered to be beneficiary friendly money because it helps heirs avoid the time-consuming and expensive probate process that can reduce their inheritance and delay estate distribution. In most cases, upon death of the annuitant, annuity funds pass to a properly named beneficiary without the delays and costs of probate.

4. Understand payout options:

Annuities can pay death benefits several different ways, depending on terms of the contract and when the death of the annuitant occurs. The option selected impacts how taxes are due. Here are three common payout scenarios:

    • Lump sum: Beneficiary receives payout in one distribution, and annual income taxes will be due on the entire amount.
    • Five-year rule: Beneficiary receives the full amount within five years’ time, with taxes due as payouts are received.
    • Nonqualified stretch: Beneficiary receives payouts for their entire life, with taxes due as payouts are received.
5. Review yearly:

Choosing a beneficiary isn’t set it and forget it. You should review your selections yearly, as life circumstances can easily change. Marriage, divorce, having children and death could impact your beneficiary selection. Reviewing and updating your selection can help ensure your wishes are carried out after you pass.

6. Talk to a Bankers Life expert:

Choosing an annuity beneficiary can be as complex as selecting an annuity in the first place. Fortunately, you don’t need to make these complicated decisions alone. When you talk to a Bankers Life insurance agent, Financial Representative, or Investment Advisor Representative who provides a fiduciary standard of care, you can rest assured that your decisions will help you build a plan that provides security and peace of mind.

Let us know how we can help!

Are you interested in learning more about how an annuity can help ensure the long-term security of you and your beneficiary? Schedule an appointment with our team today!


Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing or service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisors.