What Is an Annuitant?
- Annuities include three common designations for parties: annuitant, annuity owner and beneficiary. Explore the role of these individuals in an annuity.
When discussing annuities, it’s important to understand three common designations: annuitant, annuity owner and beneficiary. In this article, we’ll define these terms and explore their roles in the life of an annuity.
What Is an Annuitant?
An annuitant is the person or persons who are first in line to receive the benefits from an annuity. Because the annuitant’s gender, age and life expectancy are key factors in calculating when and how much the payments are, the annuitant is often referred to as the measuring life. In some cases, an annuitant may be the owner or contract holder of the annuity, but an annuitant can never be the annuity’s beneficiary.
What’s the Difference Between an Annuitant and an Annuity Owner?
Whereas the annuitant receives the annuity’s benefits, the annuity owner makes all the key decisions about the contract terms and is sometimes referred to as the contract holder. Annuity owners decide when income benefits begin and how long the benefits last. They also choose the beneficiary and the annuitant.
The contract holder is ultimately responsible for paying the premium, and they may make withdrawals from the account or terminate the annuity altogether. Additionally, the annuity owner may change who is named as the beneficiary of the annuity at any time.
In some cases, an annuity owner may also be the annuitant. However, if the annuitant is not the annuity owner, they may not amend the contract or make any changes to the account. Plus, an annuitant who is not the contract holder may not contribute funds to the account or withdraw money.
Because the annuity contract is based on a person’s life, an annuitant must always be a person, whereas a contract holder may be a corporation or a trust.
What’s the Difference Between an Annuitant and a Beneficiary?
The beneficiary of an annuity is the person or entity who receives any cash value remaining in an annuity after the death of the annuitant(s). Although the same person may serve as both an annuity owner and an annuitant, the beneficiary of an annuity must be a separate individual or entity.
An annuity may have one or more beneficiaries, who are named by the annuity owner when the contract is created and may be changed at any time at the annuity owner’s request. A beneficiary does not have any authority to amend the annuity contract. However, if the beneficiary is the spouse of the contract owner, they may take over as the annuity’s owner upon their spouse’s death, which lets them receive periodic payments while deferring the associated income tax. This option isn’t available to non-spouse beneficiaries.
Spouse Vs. Non-Spouse Beneficiaries
The way an annuity pays out may be different, depending on whether the beneficiary is a spouse or non-spouse.
Depending on the individual annuity, a spouse beneficiary may be able to determine what happens to the account after the contract holder dies. They can opt to switch the contract into their name, becoming the new annuity owner and assuming all contract terms as specified in the initial agreement to delay tax consequences. The beneficiary spouse also has the right to collect all remaining payments, plus any death benefits, and to name new beneficiaries. The spouse then formally becomes the account’s new annuitant.
When payments revert to the spouse, it’s referred to as a spousal continuation. The surviving spouse benefits from long-term financial stability and can maintain a tax-deferred status.
When a non-spouse becomes a beneficiary, they can’t modify the annuity’s contract terms. Non-spouse beneficiaries may only access designated funds, as specified by the annuity owner in the initial agreement.
Joint or Survivor Annuities
When spouses purchase a plan together, they may opt for a joint or survivor annuity, which typically pay out for the lifetime of both spouses. In this case, both parties are considered annuitants at the outset of the policy.
What Is a Payee?
Some annuities use the term payee when referring to the person who receives payments at the time of annuitization, which occurs at the end of the annuity’s accumulation period. The annuity owner, annuitant and payee are often the same individual. However, the payee may also be a third party such as a guardian or someone with the Power of Attorney, who has the authority to handle finances on behalf of the annuity owner. In some circumstances, the payee may be designated to make pay-related modifications on behalf of the annuitant. An annuity may have joint payees.
Learning More About Annuities
Annuities can provide a reliable means of income during your retirement years, but understanding and setting up these funds may be challenging. A reputable retirement planner or financial advisor can help you choose the right annuity and set up the contract terms in a way that secures long-term financial security for yourself and your dependents.