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Retirement Tip of the Month
Could your spouse (or another family member) receive a fixed indexed annuity death benefit? If you’ve purchased or are thinking of purchasing an annuity, you might be wondering about annuity death benefit. Many people are concerned about what happens to their money when they die. The answer to this depends on several factors. We will discuss those factors here. Let’s first define what a fixed indexed annuity (or FIA) is. Particularly, how it differs from other types of annuities.
Three Types of Annuities
Annuities come in three distinct types. Fixed annuities, variable annuities, and the aforementioned fixed indexed annuities, also known as FIAs. Annuities are all contracts between you and an insurance company. However, there are a few key differences between these three types. Firstly, they each offer a different interest rate. A fixed annuity has an interest rate that doesn’t change for the life of the agreement. Alternatively, a variable annuity has a rate that changes with the ups and downs of the stock market. Finally, an FIA has a mixed approach to its interest rate. You get a minimum guaranteed interest rate, but you also get the chance for a reasonable rate of return over time.
Furthermore, annuities vary in terms of risk. Fixed annuities tend to have the lowest risk, but offer the lowest interest rate. Variable annuities link to the stock market. This typically allows for a higher interest rate, but also comes with higher risk. Lastly, an FIA offers you a contracted interest rate floor but also lets you earn more on your money.
Options for Annuity Death Benefit
You decide what will happen with your money when you die at the time of the annuity contract. With some annuities, there’s no death benefit at all. Some of them, however, make payouts to your spouse or other beneficiaries. This type of benefit often pays in a “lump sum.” If your annuity is a “joint life” annuity, however, you could potentially lock your significant other’s income after you’re gone. In this situation, your significant other will continue to receive monthly payments for life.
The amount your spouse gets depends on the choices you make at the time of the contract. You may choose to have your spouse get the same amount you did when you were alive. You could choose to have the spousal payment be slightly less. Additionally, some annuities give you the option to assign a third beneficiary. This way, if both you and your spouse pass away, Your money can still be received by a third party.
Death Benefits of FIAs
There are two stages to an FIA. The accumulation phase and distribution phase. If you die during either of these phases, you don’t have to pay the money to your estate. Instead, you can leave it to your spouse or other family members. This way, you have probate. This could save your family members time and money in court.
Taking the Next Steps
If you have questions about the death benefits of FIAs, or annuity death benefits in general, we can answer you. Reach out to us if you want to schedule a no-obligation meeting. You could also attend one of our upcoming seminar events. Allow us to help you further understand an annuity death benefit.