What happens to your annuity when you die? The answer depends on the type of annuity you own, whether you’re still in the accumulation phase or already receiving income, and the payout option you selected when the contract was set up. Some annuities transfer a remaining account value directly to beneficiaries. Others continue income to a spouse. And some pay the highest possible monthly amount—then stop completely at death. The details matter because with annuities, your choices are often made up front, and the contract follows those rules later.

This page is designed to help you understand the most common “end-of-life” outcomes for annuities in plain English. We’ll cover how beneficiary designations work, how payout options change what heirs receive, what happens with income riders, how taxes usually work for beneficiaries, and the most common mistakes that cause delays. If you’re reviewing contracts now—or deciding between multiple strategies—this knowledge helps you protect your family and avoid unpleasant surprises later.

If you want to compare strategies side by side, it helps to start with two things: (1) today’s rate environment, and (2) the lifetime-income math. You can begin by reviewing current annuity rates, explore structured payout choices through lifetime income annuity options, and use the income calculator on this page to model a scenario that matches your goals.

The Two Big Questions That Decide What Happens

Before you get lost in riders, “death benefit” language, or payout names, most annuity outcomes at death boil down to two core questions. First: Are you still in the accumulation phase, meaning the annuity is acting like a protected savings contract that can later be turned into income? Second: If income has started, what payout option did you choose, meaning what rules govern whether payments stop at death or continue to someone else?

If you are still accumulating value in a fixed annuity or a fixed indexed annuity, the usual outcome is that a remaining account value transfers to beneficiaries. But even then, the “remaining value” can be affected by contract timing and features—particularly surrender schedules, bonus recapture rules, and whether the contract waives certain charges at death. If you are already receiving lifetime income, the “account value” may matter a lot less than the payout option you locked in, because many lifetime income structures trade flexibility for a higher paycheck.

This is also why annuities are often reviewed alongside broader retirement and estate strategies. Some families prioritize the biggest paycheck. Others prioritize leaving predictable value to heirs. Many want both—and that typically requires a deliberate structure rather than a single “one-size-fits-all” contract. If you like the idea of combining predictable income with household flexibility, you may also want to explore how income tools coordinate with other retirement assets, such as 457(b) plan options or spousal planning topics like spousal inherited IRAs.

Why Beneficiary Designations Matter More Than Most People Think

For most annuity owners, the simplest “win” is that an annuity usually transfers by beneficiary designation. That means if the beneficiary is correctly listed and up to date, the annuity value can typically be paid directly to the beneficiary without going through probate. Probate avoidance is not just a legal convenience; it can be a practical financial advantage because it often reduces delays and administrative friction at the exact moment a family is trying to handle a stressful transition.

However, probate avoidance is not automatic in every scenario. The most common “accidental” probate triggers are things like naming the estate as beneficiary, leaving beneficiaries blank, listing a deceased beneficiary without a contingent designation, or having a mismatch between names and legal documents that forces additional verification. When the beneficiary setup is clean, the insurer’s claims process is typically much smoother. When it’s messy, even a contract that was designed to be simple can become time-consuming.

If legacy planning is a serious priority, a practical step is to treat beneficiary reviews as part of routine financial maintenance—much like reviewing a will, trust, or IRA beneficiaries. It’s also worth understanding how different annuity designs approach death benefit language, which is why many people compare pages like Do annuities have a death benefit? before choosing a strategy.

If You Die Before Taking Income: What Beneficiaries Usually Receive

If your annuity is in the accumulation phase—meaning you have not annuitized into a lifetime payout—your beneficiaries typically receive a death benefit that is based on the contract’s account value. With a fixed annuity or a fixed indexed annuity, that is usually the accumulation value shown on your most recent statement. In many contracts, the death benefit is straightforward: the insurer pays the beneficiary the remaining value, and the beneficiary chooses a distribution method within the insurer’s rules.

The phrase “straightforward” can still hide important details, though. Many fixed and indexed annuities include surrender schedules, particularly during the early years. Some contracts waive surrender charges at death, while others may apply certain adjustments depending on timing and contract language. In addition, if a product offered an upfront bonus, there may be bonus recapture provisions if death occurs during certain time frames, depending on the contract. These are not reasons to avoid annuities—they are simply reminders that the “death benefit” is a contract-defined rule set, and contracts differ.

Beneficiaries commonly have a few options for how they want to receive the benefit. Some prefer a lump sum to simplify the estate process. Others prefer a structured payout to control taxes and preserve planning flexibility. Some contracts allow the beneficiary to keep the annuity in force under beneficiary rules, while others require distribution within certain time frames. If you want to build flexibility, one approach some families use is to diversify timing—similar in spirit to laddering fixed annuities for retirement income—so that not all value is locked into one set of restrictions at one time.

At a practical level, what beneficiaries usually need to begin the process is proof of death, identity verification, and claim forms. The simplest way to reduce delays is to keep beneficiary information current and organized so your family isn’t trying to reconstruct paperwork under stress.

If You Die After Income Starts: The Payout Option Is the Decision Maker

The biggest shift happens when you move from “accumulation” to “income.” If you annuitize (or otherwise lock into a payout schedule that functions like annuitization), the contract is no longer primarily a savings vehicle. It becomes a paycheck rule set. In that world, the core question becomes: What payout option did you choose? That decision governs whether payments stop at death, continue for a guaranteed period, refund a portion of the premium, or continue to a surviving spouse.

This is why the tradeoff is real. The payout option that usually produces the highest monthly income is also the one that often provides the least leftover value to beneficiaries. That can be an excellent choice for someone whose main priority is maximum lifetime income and who has other assets earmarked for heirs. But for someone who wants both a strong paycheck and predictable transfer value, it can be the wrong fit.

If you’re comparing these options, you’ll see the same themes again and again in annuity language: “life only,” “period certain,” “cash refund,” “installment refund,” and “joint life.” Below, we’ll break each down in plain terms and explain what it usually means for your beneficiaries.

Life-Only Income: Highest Paycheck, Typically No Beneficiary Continuation

A life-only payout is often the simplest contract rule: the insurer pays you as long as you live, and payments stop at death. Because the insurer does not need to plan for continuing payments to someone else, the monthly payout can be higher than options that guarantee continuation. For retirees who want to maximize their own income and who do not need the annuity to leave value to heirs, life-only can be attractive.

The downside is exactly what makes it valuable: if you die early in the payout period, there may be no remaining payments for beneficiaries. This is why life-only is best understood as a “personal pension” choice rather than a legacy tool. For families who want to reduce the risk of “dying early and leaving nothing,” the next set of options exists specifically to solve that problem.

If you want to understand how to compare payouts more precisely, it can help to review definitions and examples like life with period certain annuity structures and refund-based options.

Life With Period Certain: Income for Life, Plus a Guaranteed Time Window

A “life with period certain” payout tries to balance two goals: income that can last for your lifetime, plus a guarantee that payments will continue for at least a specified period (often 10, 15, or 20 years). If you die during the period-certain window, the contract continues paying your beneficiary for the remainder of that window. If you live past the period certain, the contract continues paying you for life, but there may be no “extra” benefit left to heirs after death unless the contract includes additional features.

This is one of the most popular ways to reduce the fear of “I’ll pass away too soon and my family gets nothing,” while still maintaining a lifetime-income structure. The tradeoff is that monthly income is typically lower than life-only, because the insurer is guaranteeing payments for at least the period-certain term even if you die early.

If you want the deeper definitions and how insurers describe this option, this companion page can help: What is a life with period certain annuity?

Life With Cash Refund: Ensuring at Least Your Premium Is Paid Out

A cash refund option is designed to address a very specific concern: “If I die before I get my money back, does the insurer keep the rest?” Under a cash refund payout, if you die before the total income paid equals your original premium, the insurer pays your beneficiaries the difference as a lump sum. If you live long enough that the income you’ve received exceeds your premium, there is typically no refund left, because the contract has already fulfilled the “premium back” goal.

This option can be appealing to people who want lifetime income but also want to remove the psychological risk of “losing” the principal if death comes early. The tradeoff is that the monthly payout is usually lower than life-only, because the insurer is taking on additional refund risk.

If you want a deeper explanation of how this is commonly structured, see: What is a cash refund annuity?

Life With Installment Refund: Continuation Payments Until Premium Is Recovered

An installment refund is similar in spirit to cash refund, but instead of paying a lump sum to beneficiaries, the contract typically continues periodic payments to the beneficiary until the total payout equals the original premium. Some families prefer this because it functions more like “income continuation” and can feel easier to manage, especially if beneficiaries are budgeting around monthly or quarterly cash flow.

Installment refunds can reduce the need for beneficiaries to make immediate reinvestment decisions during a stressful time. But the tradeoff remains: because the insurer is guaranteeing premium recovery through ongoing payments, the starting monthly income can be lower than life-only.

If your planning goal is to support a spouse, the next option—joint life—often becomes the focal point.

Joint Life and Spousal Continuation: Designed for Two Lifetimes

Joint life options are built for couples who want the annuity paycheck to continue for as long as either spouse is alive. In this structure, the contract is priced around two lifetimes rather than one, which is why monthly income is typically lower than a single-life payout. But for many couples, the value is obvious: the survivor doesn’t face an immediate income drop when the first spouse passes away.

Joint life annuities can be configured in multiple ways, such as 100% continuation (the survivor receives the same payment amount) or reduced continuation (the survivor receives a lower percentage). The “best” version depends on how much other income the surviving spouse would have, whether Social Security survivor strategy is part of the plan, and whether the household has other assets earmarked for heirs.

This is where annuity planning often becomes a household strategy rather than an individual decision. Many couples are trying to create a reliable floor of income that supports the survivor scenario, while keeping some flexibility and liquidity elsewhere. If you want a deeper definition of the structure, see: What is a joint lifetime income annuity?

For some couples, spousal continuation is also addressed through contract features rather than pure annuitization, which is why you’ll sometimes see riders and contract provisions discussed alongside payout options.

Income Riders and Death Benefits: The “Two Values” Confusion

A major point of confusion in modern annuity planning is the income rider. Many fixed indexed annuities are purchased with an income rider that creates “lifetime withdrawal rights” without requiring immediate annuitization. This can feel like the best of both worlds: protect principal, potentially earn index-linked credits, and have a lifetime-income option that can be turned on later. But riders also introduce two different values that can be misunderstood.

Most income rider designs create (1) an account value—your real accumulation value—and (2) an income base (sometimes called a benefit base)—a calculation number used to determine future lifetime withdrawals. The income base is often larger because it grows under contract rules designed for income math, not cash value. The key legacy point is this: beneficiaries typically receive the remaining account value, not the income base. In other words, the “bigger” number on the illustration is not necessarily transferable as a death benefit.

That does not make riders bad. It simply means the rider is an income tool first and a legacy tool second. If legacy is a primary goal, some families choose a structure that keeps more accumulation value accessible, or they pair an income-focused annuity with separate legacy planning elsewhere. If you want a focused explainer on rider mechanics, review: How do income riders work?

If you want income flexibility with a clearer understanding of what’s left to heirs, a good habit is to evaluate contracts based on “what happens in each scenario” rather than relying on a single headline feature. That’s also why comparisons often include pages like guaranteed income from annuities and “how much income at a target age” examples such as guaranteed income at age 70.

Taxes for Beneficiaries: What Usually Gets Taxed (and Why Timing Matters)

Taxes are one of the most misunderstood parts of annuity death benefits. A helpful starting point is this: annuities do not typically create “capital gains” treatment the way stocks can. Annuity earnings are usually taxed as ordinary income when they are distributed. That doesn’t mean beneficiaries automatically face a huge tax bill. It means the tax outcome depends on how much of the annuity is principal versus gain, whether the annuity is qualified or non-qualified, and how the beneficiary chooses to receive distributions.

If an annuity was funded with after-tax money (non-qualified), beneficiaries generally pay taxes on the gain portion when they receive distributions. The principal portion is generally not taxed again because it was already after-tax money. If the annuity was inside a retirement account (qualified), distributions are generally taxable as ordinary income because the contributions were pre-tax. In both cases, timing matters because the distribution schedule can affect how income stacks in the beneficiary’s tax year.

This is one reason people sometimes choose a structured distribution instead of a lump sum. A lump sum can be emotionally appealing because it feels “clean,” but it can also concentrate taxable income into one year. A structured payout can sometimes distribute taxable income over time and reduce bracket pressure. Again, contracts and rules vary, so the best planning approach is to evaluate options before a claim happens, rather than assuming heirs will “figure it out” later.

If you’re thinking about annuities as part of broader wealth-transfer planning, it’s also useful to understand how annuities fit in higher-level strategies. Some retirees review topics like wealth planning frameworks while deciding how much to prioritize income versus legacy in their annuity allocation.

Qualified vs. Non-Qualified Annuities: Why the “Container” Changes the Outcome

A common trap is treating “the annuity” as the tax driver, when the tax container can be the bigger variable. Two identical annuity contracts can have different real-world outcomes based on whether they are held inside an IRA or held as a non-qualified annuity. For beneficiaries, that can mean different reporting, different distribution timing expectations, and different ways distributions stack with other income.

This becomes especially relevant when people use annuities as a destination for inherited retirement assets. When you see topics like transferring an inherited IRA to an annuity, what’s often happening is that families are trying to create structure around distribution behavior—particularly for heirs who want predictable rules rather than a “manage it yourself” portfolio approach. The planning goal is usually not to “avoid all taxes” but to make taxes more predictable and reduce behavioral mistakes.

If the “beneficiary experience” is a priority, it is worth reviewing the beneficiary payout menu directly in the contract, because that menu influences how easy (or complicated) the post-death process will be.

The Most Common Mistakes That Create Delays or Unwanted Outcomes

Most problems with annuities at death are not caused by the concept of annuities—they’re caused by avoidable oversights. The most common mistake is an outdated or incomplete beneficiary designation. The second most common mistake is assuming that “income rider value” transfers like an account value. Another common issue is not understanding that some payout options are irrevocable once started, which can surprise a family who expected “whatever is left” to go to heirs.

There are also practical issues that can slow the process. If beneficiaries don’t know where the annuity is held, if statements are missing, or if the family can’t quickly produce the required documents, a claim can take longer than expected. Families can reduce that friction by keeping a simple “policy inventory” document—just a list of account institutions and contract numbers—alongside other estate documents.

Finally, avoid the temptation to choose a contract based on a single headline feature (like a bonus) without confirming the actual legacy outcome. The best legacy outcome is the one that matches your priorities and is clearly understood by your family.

At-a-Glance: How Common Payout Choices Affect Beneficiaries

A Smarter Way to Balance Income and Legacy: Layered Annuity Planning

Many retirees assume they must choose between “max income” and “leave value to heirs.” In practice, a layered approach can often reduce that tension. Instead of trying to force one annuity to do everything, some families separate roles. One piece is designed for income. Another is designed for flexibility and beneficiary value. A third might be used for timing—starting later or serving as a reserve. This is conceptually similar to how people use different retirement accounts for different purposes, rather than expecting one account to solve every planning goal.

Layering can also reduce the risk of locking everything into one irrevocable option. For example, some households prefer to secure a stable baseline through an income-focused structure, then keep other assets more liquid. Others prefer a conservative, rate-based base and activate income later. The correct structure depends on spending needs, spouse planning, and the role of other assets. That’s why it’s helpful to model numbers rather than rely on intuition alone.

If you’re comparing “what pays the most” versus “what protects the family most,” the most useful next step is to model guaranteed income and see what it would take to cover essential expenses. That’s exactly what the calculator below is designed to help with.

Estimate Guaranteed Income and Compare Payout Choices

💡 Note: The calculator accepts premiums up to $2,000,000. If you’re investing more, results increase in direct proportion — for example, doubling your premium roughly doubles the guaranteed income at the same age and options.

How to Choose the Right “At-Death” Outcome for Your Situation

Choosing the right annuity structure is not just about rates or “how much income can I get.” It’s about deciding what you want your annuity to do for you while you’re alive and what you want it to do for your family later. If your highest priority is maximizing lifetime income and you have other assets dedicated to heirs, a higher-paycheck payout can make sense. If your priority is ensuring heirs receive predictable value, a structure that keeps account value available may be better. If your priority is protecting a spouse, joint life or spousal continuation features often move to the top of the list.

It’s also worth remembering that “beneficiaries” may have different needs. A surviving spouse might want income continuity, not a lump sum. Adult children might prefer a clean distribution with simplified paperwork. A family with complex estate planning might want the annuity to stay simple and avoid probate friction. These preferences should influence contract design, because the most “technically correct” structure is not always the one that feels simplest for your household to live with later.

If you want to go deeper into the exact mechanics of death benefit language and contract rules, these companion resources are helpful: Do annuities have a death benefit?, cash refund annuity, and joint lifetime income annuity.