One of the most important features of an annuity is the death benefit. The death benefit ensures that if the annuitant dies prematurely, his beneficiary will receive at least the premium amounts paid by him. For example, if the annuitant purchased a fixed annuity for one hundred thousand dollars, his beneficiary will receive at least one hundred thousand dollars upon his death. Some insurance companies sell the death benefit as a standard part of their annuities while other insurance companies sell it as a separate rider.
The death benefit expires on two accounts. The death benefit expires once the annuity is annuitized and once the age limit which is typically set at 85 years is reached. Research has shown that not many insurance companies pay the death benefit due to the fact that most annuities are annuitized before the death of the annuitant.
The death benefit is indeed a secure option for those who are worried about a premature death and not being able to at least receive back their premiums. Sometimes, the insurance company can decide to pay more to the beneficiary than just the premium amounts. The insurance company can pay an amount calculated by applying annuity rates ranging from 5% to 7% to the premium amounts.
The death benefit is a great option as it guarantees that the beneficiary receives the premium amounts but it results in annuities being more expensive. An annuity contract without the death benefit is cheaper than an annuity contract with the death benefit included. Some annuities are almost 50% more expensive that annuities without the death benefit.
When the annuitant dies, his beneficiary has two options. He can either choose to receive the death benefit or leave it within the annuity. If the beneficiary is the spouse of the annuitant and chooses to receive the death benefit, he or she will have to pay taxes on the part of the premium amount that has increased in valued over the years but if he or she decides not to receive the death benefit but to leave it within the annuity, he or she will not be required to pay taxes on the benefit. If the beneficiary is the child or relative of the annuitant, the premium amount can be received in monthly payments or as a lump sum amount. In both cases, the total amount received is taxable.
