Could Your Spouse Receive a Fixed Index Annuity Death Benefit?
If you have an annuity (or, are thinking about getting one) you may be wondering about your annuity death benefit. Essentially, many people want to know what happens to their money when they die. The answer to this depends upon several factors, which we will cover here. First, let’s define what a fixed index annuity is and then how it may vary from other types of annuities.
Different Types of Annuities
To clarify, annuities come in three main types: fixed, variable, and fixed index annuities. All annuities are contracts between you and an insurance company. But there are some key differences between the three types of annuities. First, each offers a different interest rate. For example, the interest rate set when you sign a fixed annuity contract doesn’t change for the life of the agreement. In contrast, the rate of a variable annuity will change as the market goes up or down. Finally, a fixed index annuity has a mixed approach to the interest rate. That is to say, you get a minimum guaranteed interest rate. However, you also get the chance for a reasonable rate of return.
In addition, annuities vary in terms of their risk. Fixed annuities tend to offer the lowest risk, and therefore have the lowest interest rate. Variable annuities link to the stock market and therefore carry a higher risk. Fixed index annuities offer a little of both. You get a contracted interest rate floor, but it also lets you earn more money.
Moreover, these annuities differ in their available death benefits options.
Possible Death Benefit of Fixed Index Annuities (FIAs)
At the time of annuity contract, you decide what will happen with your money when you die. With some products, there is no annuity death benefit. On the other hand, some make payouts to your spouse or beneficiaries. For example, with an FIA, there is an accumulation phase and a distribution phase. If you die during either of these phases, you don’t have to pay your estate the money. Instead, you can leave it to your spouse or other family members. In this way, you avoid probate. This may save family members time and money in court.
In addition, you may be able to select how your loved ones will receive your money upon your death. For instance, some fixed index annuities allow you to pay your beneficiary with monthly or annual payments. Also, you may have the option of the money going to your designee in a lump sum. Finally, you may have choices that allow the payments to be provided for the rest of your beneficiary’s life.
Annuity Death Benefit Options
So, what happens if you pass away before your annuity starts to payout? Many plans offer an annuity death benefit to the person(s) you choose. Often, this type of benefit pays in a lump sum. However, if your annuity is a “joint life” annuity, you can potentially lock in your husband or wife’s income after you are gone. In this situation, your spouse continues to receive monthly payments for life.
Importantly, the amount your spouse gets depends on the choices you make at the time of contract. You may choose to have your husband or wife get the same amount you did while you were alive. Or, you can choose to have the spousal payment be a little less. In addition, some annuities give you the chance to assign a third beneficiary. That way, if both you and your spouse pass away, the money can go to a third party.
If you have questions about Fixed Index Annuities or death benefits of annuities in general, we’re here to help. Reach out to us to schedule a no-obligation meeting. Or, attend one of our upcoming events.