What Happens When Your Annuity Contract Ends

The annuity ends on a date you chose when you bought it, and your remaining balance goes to you or your beneficiary

An annuity contract has an expiration date — sometimes called a maturity date or end date. When that date arrives, the insurance company stops sending you payments and the contract closes. What happens to any money left depends on the type of annuity you own and what you chose when you signed up.

If you bought a fixed annuity that pays you for a set number of years (like 20 years), the contract straightforward ends on year 20. If you bought one that pays you for life, it ends when you die. Some annuities let you choose what happens to leftover money — you can take it as a lump sum, roll it into a new annuity, or leave it to a named beneficiary.

Key Takeaways

• The end date of your annuity is written in your contract and was set when you purchased it.
• If money remains when the contract ends, you receive it as a lump sum unless you chose a different option at purchase.
• Lifetime annuities end when you die, and any remaining balance typically goes to your named beneficiary.
• Some annuities let you add a rider that guarantees a minimum payout to your beneficiary even if you die early.
• You can sometimes exchange an ending annuity for a new one without paying taxes on the transfer, using a process called a 1035 exchange.

How the end date works for different annuity types

A term-certain annuity pays you for a fixed period — 10 years, 20 years, or 30 years, depending on what you chose. On the last payment date of that term, the contract ends. If you are still alive and money remains in the account, you get it. If you die before the term ends, your beneficiary receives the remaining payments or the remaining balance, depending on your contract.

A life annuity (also called a straight life annuity) pays you for as long as you live. The contract ends when you die. At that point, the insurance company keeps any remaining money — there is nothing left for your beneficiary unless you added a rider. This is why some people avoid straight life annuities: if you die shortly after the contract starts, your heirs receive nothing.

A joint and survivor annuity continues paying after you die. It pays you during your lifetime, then pays your spouse or other named survivor a reduced amount for the rest of their life. The contract ends when the surviving person dies.

What you receive when the contract ends

If your annuity is a term-certain contract and you are still alive when it matures, you will receive the remaining balance as a lump sum. The insurance company sends you a check or deposits the money into your bank account. You can then spend it, invest it, or use it to buy a new annuity.

If you added a death benefit rider to your contract, your beneficiary may receive a may provide minimum payout even if the account value has dropped. For example, you might have paid $100,000 into an annuity, and the rider guarantees your beneficiary gets at least $100,000 if you die. If the account is worth $95,000 when you die, the rider makes up the $5,000 difference.

Some annuities include a period-certain may provide, which means the insurance company promises to pay your beneficiary for the remainder of a set period if you die early. If you bought a 20-year annuity and die in year 12, your beneficiary receives payments for the remaining 8 years.

Tax treatment when your annuity ends

If you receive a lump sum when your annuity matures, part of that money may be taxable. The portion that came from your original investment (called your cost basis) is not taxed again. The portion that came from earnings is taxed as ordinary income in the year you receive it.

If you inherited an annuity and the contract is ending, the tax rules depend on whether you inherited it from a spouse or someone else. A surviving spouse can treat the annuity as their own and continue receiving payments. Other beneficiaries must take the remaining balance within a set timeframe, usually five years, and pay income tax on the earnings portion.

If you want to move money from an ending annuity into a new one without triggering taxes, you can request a 1035 exchange. This is a direct transfer from one insurance company to another. The money never touches your hands, so there is no when ready tax bill. You will owe taxes later when you eventually withdraw from the new annuity.

Options if you want to keep receiving payments

When your term-certain annuity is about to end, you do not have to take the lump sum. Many insurance companies let you annuitize the remaining balance — meaning you convert it into a new stream of payments. This is useful if you want to keep the money working and avoid the temptation to spend it all at once.

You can also use the remaining balance to purchase a new annuity from the same company or a different one. This gives you a chance to shop around and potentially get better rates or terms. Some people do this every few years to lock in current interest rates.

If you do nothing and let the contract end, the insurance company will contact you about what to do with the remaining balance. They cannot straightforward keep it. They are required to send you the money or ask you to choose an option.

What happens if you die before the contract ends

If you die while your annuity is still active, the outcome depends on the type of annuity and any riders you added. With a straight life annuity and no riders, the contract ends and your beneficiary receives nothing — the insurance company keeps the remaining balance. This is a major drawback of straight life annuities.

If you added a death benefit rider or chose a period-certain may provide, your beneficiary receives the promised amount. If you chose a joint and survivor annuity, your surviving spouse or named beneficiary continues to receive reduced payments for their lifetime.

Your beneficiary will receive a form from the insurance company explaining what they are may have access to to and how to claim it. They will need to provide a death certificate and proof of their identity. The payout typically arrives within 30 to 60 days.

Surrendering an annuity before it ends

You do not have to wait for your annuity to reach its end date. You can surrender (close) the contract early and take the remaining balance. However, most annuities charge a surrender fee if you withdraw money before a certain number of years have passed. This fee is a percentage of the amount you withdraw and can range from 1% to 10% or more, depending on your contract.

Surrender fees typically decrease over time. An annuity might charge 7% if you withdraw in year one, 6% in year two, and so on, until the fee reaches zero. Once the fee period ends, you can withdraw without penalty.

If you are under age 59½ and withdraw from an annuity before the contract ends, you may also owe a 10% early withdrawal penalty to the IRS, on top of the surrender fee and income taxes. This is why annuities are generally meant to be long-term investments.

Planning ahead for your annuity's end date

When you buy an annuity, the end date feels far away. But it is worth thinking about what you want to happen when it arrives. Will you need the money as a lump sum? Do you want payments to continue? Should you add a death benefit rider to protect your beneficiary?

Review your annuity contract every few years, especially as you get closer to the end date. Insurance companies sometimes offer options to extend the contract, convert it, or add new riders. You may also want to talk with a financial advisor about whether a 1035 exchange makes sense when the contract is about to mature.

Keep your beneficiary information current. If you named a beneficiary 20 years ago and your circumstances have changed, you can update it. The insurance company has a form for this, and it takes just a few minutes.

Frequently Asked Questions

Can I extend my annuity contract past the end date?

Some annuities allow extensions, but it depends on your specific contract. Contact your insurance company at least 90 days before the end date to ask about your options. You may be able to renew at current rates, annuitize the balance, or take a lump sum.

What if I need the money before my annuity ends?

You can withdraw early, but you will likely pay a surrender fee (usually 1% to 10% of the withdrawal), income taxes on the earnings, and possibly a 10% IRS penalty if you are under 59½. The exact cost depends on how many years remain on your contract and how much you withdraw.

Does my beneficiary have to take the money all at once when I die?

Not always. If your annuity includes a period-certain may provide or a death benefit rider, your beneficiary may receive payments over time instead of a lump sum. If there is no such rider, they typically receive the remaining balance as a single payment.

Can I move my annuity to a different insurance company before it ends?

Yes, using a 1035 exchange. This is a tax-free transfer of your annuity from one insurance company to another. You do not touch the money, so there is no when ready tax bill. The new company takes over the contract, and you can choose new terms.

What happens if the insurance company goes out of business before my annuity ends?

Each state has a guaranty fund that protects annuity holders if an insurance company fails. The fund typically covers up to $250,000 per person per company. Contact your state's insurance commissioner's office to learn the exact limits in your state.