An annuity death benefit is a useful thing that can make a huge difference to your beneficiary when you move on from this life. However, few people fully understand what an annuity contract is or how it works. Let’s take a closer look at the intricacies of this type of policy and how enhanced death benefits or even a standard death benefit can affect your loved ones.

What Is An Annuity Death Benefit?

An annuity death benefit is a feature provided by some types of annuities that offer financial security and assistance to the annuity contract’s beneficiaries following the passing of the annuity holder (also known as the annuitant).

The payout may take the form of a lump sum payment, or it may take the form of several monthly payments. Irrespective of the form that the annuity payments take, it’s worth noting that there are several different types of Annuity Death benefits.

Types of Annuity Death Benefit

The different types of annuity death benefits include the following:

  • Return of Premium (ROP) Death Benefit: This option provides the beneficiaries with at least the initial investment (or premiums) placed in the annuity, less any withdrawals the annuitant made. This guarantees that the beneficiaries receive at least the principal amount invested.
  • Guaranteed Minimum Death Benefit (GMDB): The GMDB guarantees that the beneficiaries will receive a specified minimum amount, regardless of the annuity’s performance in the market. If the annuity’s value has decreased due to poor market performance, the GMDB ensures that the beneficiaries receive the agreed-upon minimum.
  • Stepped-Up Death Benefit (SUB): This feature enables the periodic adjustment of the annuity’s death benefit in accordance with the annuity’s performance. The beneficiaries may get a bigger death benefit than what was initially invested if the annuity’s value has grown over time.
  • Joint and Survivor Annuity Death Benefit: This option is often chosen by couples. It ensures that the surviving spouse or partner continues to receive annuity payments after the annuitant’s death, typically at a reduced rate. This helps provide ongoing income for the surviving spouse.

How Annuity Death Benefits Work

Annuity death benefits provide protection, and a source of income, to the annuitant’s loved ones at the time of their death. Other types of annuity may provide retirement income or cover another eventuality. However, with death benefits, the insurance company or broker only starts paying out when the annuity owner dies.

There are several steps to getting an annuity death benefit. The first of these is to make a payment. This can take the form of multiple income payments over an extended period, or it could take the form of a lump sum upfront.

The insurance company or broker then takes the premiums paid and invests them on your behalf, typically following the direction of a financial advisor. As the investment matures, this provides the money that will later become a guaranteed stream of income for the annuity beneficiary.

Benefits of Annuity Death Benefits

There are many advantages to having an annuity death benefit or a similar policy. Here are some advantages of taking out an annuity contract:

  • Financial Protection for Your Beneficiaries: The fact that annuity death benefits offer beneficiaries a safety net in the case of the annuitant’s passing is one of their main advantages. The death benefit makes sure that surviving family members have access to money to deal with pressing needs like funeral fees and unpaid debts.
  • Predictable Income Stream: A surviving spouse or partner may get a steady income stream from some annuity death benefits following the annuitant’s passing, such as the Joint and Survivor Annuity Death Benefit. This is particularly helpful for preserving financial security in retirement.
  • Avoidance of Probate: The time-consuming and expensive probate procedure is generally avoided through annuity death payments. Without involving a court, beneficiaries receive the death benefit directly. The distribution of monies to beneficiaries may go more quickly as a result.
  • Flexibility in Payout Options: From variable annuities to fixed annuities, most annuities offer a range of payout options. Some may payout the sum of the contract value as a lump sum. Most often, when the annuitant dies, the annuity beneficiaries will receive a series of smaller payments till the cash value of the contract has been fully paid. That way, the annuitant’s spouse, children, or other loved ones have guaranteed income for a predetermined time frame.
  • Tax Advantages: Depending on the type of annuity contract you have, it’s possible that your beneficiaries could escape many tax consequences that they’d otherwise have to deal with. However, as stated, different annuity contracts, regions, and even financial institutions may vary significantly regarding tax regulation. It’s essential to know what percentage of your annuity will be considered taxable income.
  • Protection Against Market Volatility: The Guaranteed Minimum Death Benefit (GMDB), among other death benefit choices, offers protection against market downturns. For annuitants who are worried about protecting their major investment for their beneficiaries, this can be extremely helpful.

What Are the Factors To Evaluate When Choosing Annuities With Death Benefits?

Ensuring that your annuity beneficiaries are well cared for starts with choosing an appropriate death benefit. But what should you look out for when trying to choose the right annuity? Here are some of the most important things to consider:

  1. Type of Annuity:
    Consider which of the annuity types (variable, fixed, indexed) best suits your requirements and preferred risk level. Different types vary significantly in their features and what they offer.
  2. Costs and Fees:
    Annuities may include a range of fees that you’ll need to consider. These may include mortality and expense charges, administrative fees, and investment fees.
  3. Guarantees and Risk Tolerance:
    Consider how willing you are to take risks and whether you feel that you absolutely require guarantees. Less risk and better guarantees may also translate to lower overall gains on your annuities.
  4. Beneficiary Designations:
    Ensure you accurately designate beneficiaries to receive the death benefit. Keep designations up to date to reflect changes in your family or financial situation.
  5. Payout Options:
    You’ll also need to evaluate the available payout options. Do you wish the annuity beneficiaries to receive the money as a lump sum, as a series of payments, or would you like it to pass on to your children as an inherited annuity?


Annuity death benefits are an ideal way to help ensure that your loved ones are cared for after your demise. While there are a few limitations to any type of annuity, the benefits outweigh them by far.

An inherited annuity income can be a serious benefit to the annuity’s beneficiary, especially in these trying financial times. If you wish to know more about annuity benefits and how the right annuity can help your family to survive, feel free to contact us. Our friendly and knowledgeable team of experts will be only too happy to help you find the information that you need and to advise you regarding the best type of policy for your situation.

Jeremiah Konger
Jeremiah Konger
CEO at Annuity Association

Jeremiah understood his whole life the importance of community and caring for those who are a part of it. Starting his first business venture at the age of 23, he gained invaluable experience in working with others for a joint purpose.
He founded his first wireless retail business in 2011, expanding it from one store to 12 locations across the state in just three years.
Once he sold his company, Jeremiah began the journey he’s on today, using his talents and experience to work with seniors in order to help them find the best means of financing their retirement plans.

He’s found his true calling working as a proud member of the Annuity Association, assisting retirees in building their safe financial future.