Can Annuities Have Primary Beneficiaries and Contingent Beneficiaries?

by Alexis Lawrence

Annuities are accounts funded throughout an owner’s working life, or with one lump sum payment, that pay out to the annuity owners in regular payments. When an owner opens an annuity, he must declare a beneficiary to whom those payouts continue in the case of the death of the original payee. Some annuities require both primary beneficiaries and secondary, or contingent, beneficiaries.

Advantage of an Annuity

An annuity agreement provides a method of saving money for distribution at a later time in life, such as after retirement. Though the owner of an annuity makes contributions to the annuity that account for much of the annuity’s total worth, annuities, like IRAs and 401(k)s, also earn interest. This interest grows tax-free in the account until the money is distributed to the owner of the annuity according to the payout schedule.

Annuity Payout

The prepared payout schedule for an annuity is based on the expected lifespan of one person. This person, known as the annuitant, may or may not be the owner of the annuity. An owner may also base the annuity on the life of his spouse or a child. The annuity pays out to the annuitant in accordance with the payout schedule until the annuity runs out or the annuitant dies.

Primary Beneficiary

Aside from the annuitant, or payee, to whom the funds in the annuity pay out on the prearranged schedule, an annuity generally requires a primary beneficiary. If the original annuitant dies before the payout schedule for the annuity completes, the distributions continue to payout to the primary beneficiary. These distributions to the primary beneficiary continue until the funds in the annuity run out or the end of the beneficiary’s life.

Contingent Beneficiaries

Though it’s not as common of an offering in an annuity, and not generally required even if the annuity does offer it, some annuities allow a secondary, or contingent, beneficiary along with the primary beneficiary. If the account has a contingent beneficiary, that person begins receiving payouts from the annuity upon the death of the primary beneficiary. Generally, the rules for the annuity payouts change by the time they reach a contingent beneficiary. The full amount of contributions still usually pay out, but the interest is forfeited to the company who controls the annuity.

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