What Happens to Your Annuity After You Die

The annuity's fate depends on the type you own and the beneficiary choices you made when you bought it

When you die, your annuity does not automatically disappear or revert to the insurance company. What happens to the money depends on three things: whether your annuity is when ready or deferred, whether you chose a death benefit rider, and who you named as your beneficiary. Some annuities stop paying out entirely when you die. Others continue paying your spouse or children for years. Some return unused money to your estate. The insurance company does not decide — you decided when you set up the contract.

The most common outcome is that remaining funds pass to whoever you named as beneficiary on the annuity contract itself. This happens outside of probate, meaning your beneficiary can receive the money without waiting for a will to be processed. However, if you chose a life-only annuity — the type that pays the highest monthly amount because payments stop when you die — there may be nothing left to pass on.

Key Takeaways

• A life-only annuity stops paying when you die, leaving nothing for heirs, but it pays the most per month because the insurance company keeps any unused funds.
• Joint-and-survivor annuities continue paying your spouse or partner at a reduced rate after you die, which is why they pay less per month than life-only options.
• Period-certain annuities may provide payments for a set number of years regardless of whether you live that long, so your beneficiary receives remaining payments if you die before the period ends.
• Deferred annuities with death benefit riders allow your beneficiary to receive either the amount you invested or the current value of the account, whichever is larger, if you die before annuitization.
• Your beneficiary receives the payout directly from the insurance company without the money going through probate, but they may owe income tax on the portion that represents earnings.

Life-Only annuities: payments end when you do

A life-only annuity (also called a straight-life annuity) pays you a fixed amount each month for as long as you live. The moment you die, the payments stop. The insurance company keeps any money that remains in the contract. This is why life-only annuities pay the highest monthly amount — the company is betting it will not have to pay for very long, and if you live past the break-even point, they keep the difference.

If you chose this structure, your beneficiary receives nothing from the annuity itself. The contract is finished. However, if you had other assets — a house, savings, investments — those would pass to your beneficiary through your will or by whatever other ownership structure you set up. The annuity payments straightforward end.

Life-only annuities make sense for people who have other assets to leave behind and who want the maximum monthly income for themselves. They are less common among people who want to leave money to heirs.

Joint-and-survivor annuities: payments continue to your spouse

A joint-and-survivor annuity pays you during your lifetime and then continues paying your spouse or designated partner at a reduced rate after you die. The reduction is usually 50%, 75%, or 100% of your original payment — you choose this when you set up the contract. If you chose 100% survivor benefit, your spouse receives the same amount you were receiving. If you chose 50%, they receive half.

Because the insurance company knows it will be paying for two lifetimes instead of one, joint-and-survivor annuities pay less per month than life-only annuities. The longer your spouse is expected to live, the lower your monthly payment will be. This is the trade-off: you accept smaller checks now in exchange for your spouse having income later.

When your spouse dies, the payments stop completely. Nothing passes to children or other heirs unless you set up a separate death benefit rider (see below). The annuity contract ends.

Period-certain annuities: a may provide payment window

A period-certain annuity guarantees payments for a specific number of years — commonly 10, 15, or 20 years — regardless of whether you live that long. If you die before the period ends, your beneficiary receives the remaining payments in a lump sum or in installments, depending on what you chose in the contract.

For example, if you bought a 20-year period-certain annuity and died after 8 years, your beneficiary would receive 12 years' worth of payments. If you lived past 20 years, you continue receiving payments for life, but the insurance company's may provide ends at year 20.

Many people combine period-certain with joint-and-survivor features. You might have a 10-year period-certain annuity that also pays your spouse for life after you die. The structure you choose determines what your beneficiary receives and when.

Deferred annuities with death benefit riders

If you own a deferred annuity — one you have not yet converted into monthly payments — and you die before annuitization, what your beneficiary receives depends on whether you added a death benefit rider and what type it is.

Without a rider, your beneficiary typically receives the current account value. With a return-of-premium rider, they receive whichever is larger: the amount you invested or the current value. With an enhanced death benefit rider, they might receive a percentage increase over your investment or the account value, depending on the contract terms.

These riders cost extra in annual fees, but they protect your beneficiary if the market declines and your account value drops below what you put in. After your beneficiary receives the payout, the annuity contract ends.

Income tax on annuity payouts to beneficiaries

When your beneficiary receives money from your annuity, they will owe income tax on the portion that represents earnings — the growth that happened inside the contract. They will not owe tax on the portion that was your original investment, because you already paid tax on that money when you earned it.

The insurance company will send your beneficiary a form showing how much of the payout is taxable. If the annuity was funded with pre-tax money (like a rollover from a 401(k)), the entire payout is taxable. If it was funded with after-tax money, only the earnings portion is taxable.

Your beneficiary does not have to pay the tax all at once. If they receive payments over time instead of a lump sum, they pay tax only on the portion of each payment that represents earnings. The insurance company will withhold federal income tax automatically unless your beneficiary requests otherwise.

What happens if you did not name a beneficiary

If you did not name a beneficiary on your annuity contract, or if your named beneficiary died before you did, the payout goes to your estate. This means the money becomes part of your probate process, which can take months or years and involves court fees and attorney costs. Your heirs eventually receive what remains after those costs are paid.

Naming a beneficiary directly on the annuity contract avoids this. The money passes to them outside of probate, faster and with less expense. If your annuity contract does not show a current beneficiary, you can usually update it by contacting the insurance company and requesting a beneficiary change form.

Frequently Asked Questions

Can my beneficiary refuse the annuity payout?

Yes. Your beneficiary can decline to receive the payout, though this is rare. If they do, the money typically goes to the next beneficiary you named, or to your estate if no one else is listed. Declining might make sense if accepting the payout would push them into a higher tax bracket or affect their may be able to access for means-tested benefits, but they should consult a tax professional first.

Do I have to annuitize my deferred annuity, or can I leave it to my beneficiary as a lump sum?

You do not have to annuitize. If you die before converting your deferred annuity into monthly payments, your beneficiary receives the account value as a lump sum (or in installments if the contract allows). Annuitization only happens if you choose it during your lifetime. Your beneficiary inherits the contract in its current form.

What if my spouse remarries after I die?

If you set up a joint-and-survivor annuity, your spouse continues receiving payments regardless of remarriage. The annuity contract does not change based on their marital status. However, if you named your spouse as beneficiary on a deferred annuity and they remarry, they still receive the payout — remarriage does not affect beneficiary designations.

Can I change my beneficiary after I buy the annuity?

Yes, in most cases. You can contact the insurance company and request a beneficiary change form. However, if you are already receiving annuity payments and you want to change the payout structure (for example, from life-only to joint-and-survivor), you usually cannot do that — the structure is locked in once payments begin.

Will my beneficiary have to pay estate taxes on the annuity?

Possibly, depending on the size of your total estate and your state's laws. Federal estate tax applies only to very large estates (over $13.61 million in 2024, though this amount changes yearly), but some states have lower thresholds. Your beneficiary should consult an estate attorney or tax professional to understand their specific situation.