Can Annuities Have Primary Beneficiaries and Contingent Beneficiaries?

Spouses can inherit each other's annuities.

Spouses can inherit each other's annuities.

Finding a dead mouse or bird on your doorstep is a periodic reminder that your lazy, playful cat is still a predator, and a pretty capable one at that. Your investments can also have more than one side. For example, annuities are primarily used as a way to generate a retirement income, but they're also life insurance products. That means you can choose one or more beneficiaries to receive the annuity's funds if you should die before they're exhausted.

Annuities and Beneficiaries

An annuity is essentially a life insurance policy turned inside-out. Instead of turning regular payments into a lump sum at your death, an annuity turns a lump sum into regular payments for as long as you live. That's a good thing, and much of annuities' popularity comes from knowing you can't outlive your income. Unfortunately, sometimes your income will outlive you. For example, if you retire at 65 and keel over at 66 from a bad heart, the bulk of your savings will still be in the annuity. If you've named beneficiaries, they'll receive those funds after your death.

Primary Beneficiaries

The first step is to name one or more main -- or primary -- beneficiaries. If you name just one, such as a spouse or a child, that person receives the entire remaining amount. If you name two or more, the funds can be divided according to specified percentages. In the absence of such specific instructions, your insurer will divide the funds equally. If you name minor children to receive the funds, you'll also have to name an executor or trustee to receive and manage the money on their behalf. Trusts or nonprofit organizations can also be named as beneficiaries.

Contingent Beneficiaries

As with life insurance, it's also prudent to name contingent beneficiaries. In the event that your primary beneficiary is deceased when the time comes, your contingent beneficiaries will receive the payout instead. For example, if your primary beneficiaries are members of your immediate family, it's quite possible you could die simultaneously in a car accident. Naming a contingent beneficiary lets you exercise some control over the use of the funds, even in a worst-case scenario. If you have no immediate family to name, listing your favorite local charity as a contingent beneficiary is a viable option.


Like other insurance proceeds, your annuity settlement will be paid out shortly after your family or executor notifies the insurer of your passing. While the rest of your estate must go through probate, the annuity benefits will be paid directly to your beneficiaries or their trustee. The proceeds are usually taxable to the recipient, although a spouse has the option of simply taking over the annuity and keeping the contract in place as tax-sheltered retirement savings. If your beneficiaries are minor children, your state will have detailed and specific guidelines about their guardianship. It's your responsibility to ensure you've made appropriate arrangements so the money can be paid as planned.


About the Author

Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.

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