What Happens to my Annuity When I Die?
Annuities are, in most cases, a guaranteed income for the rest of your life. But what happens when you die? Well that, of course, depends entirely on the type of annuity you purchased.
Generally, the agreement in a standard single life annuity is that the payments stop when you die. Of course, there is a risk for you that you pass away before recouping the value of the fund you used to purchase your annuity. However, there’s also a risk for the annuities providers, that you live long enough that they pay out more than you paid in. This is, quite simply, just the nature of annuities.
There are certain types of annuities, however, that offer some protection for you.
Guaranteed Annuity
With a guaranteed annuity, there is a guaranteed period for which the annuity will be paid out for even if you die before this period. Let’s say, for example, this is a five year period and you die three years after taking out the annuity. In this case, your annuity would continue to be paid out for a further 2 years after your death to your spouse or next of kin.
Joint Life Annuity
If you took out a joint life annuity and you pass away before your spouse, there will be an agreed proportion of the annuity paid out to your spouse for the rest of his or her life in most cases. This will depend on the specifics of your annuity, of course.
Value Protection Annuities
It’s possible to take out annuities that offer ‘value protection.’ What this will mean in terms of the specifics depends very much upon the agreement you made with your provider, but in essence it protects some of the value of the fund used to purchase the annuity in the event that you die before the age of 75%. An agreed lump sum will often be paid out and become a part of your estate, though this will be subject to a tax of 35%.