5 Strategies for Caring for Your Beneficiaries with an Immediate Annuity

Written by Hersh Stern Updated Tuesday, October 22, 2024

Recently I spoke with a visitor to our web site who had been completely put off by the idea of purchasing an income annuity. When I asked why, he said, “Because I need to provide for my kids – they come before everything.”

Like many, he mistakenly believed that buying an immediate, deferred income, or secondary market annuity meant neglecting his children.

You can provide for your beneficiaries with an income annuity.

There are several strategies that allow you to have all the benefits of an income annuity, and still ensure that your beneficiaries are cared for.

1. Use only a portion of your funds for an annuity; reserve other types of investments for your beneficiaries.

This is very straightforward – sometimes referred to as the "life-only-invest-the-rest" approach -- which many use. What’s more, there may be other good reasons (like safety and taxes) that make diversifying your assets important, too. So decide how much money you can comfortably put into the annuity and leave the rest in savings, stocks, bonds, and real estate for "the kids".

2. Structure an with a death benefit (for immediate or deferred income annuities).

A single life annuity can be structured to pay to a beneficiary in the event of your untimely death. Choose an installment refund or a cash refund option and you will have guaranteed that your beneficiaries get back the remainder of the premium you paid but did not receive while living.

3. Choose an annuity with a joint life option (for immediate or deferred income annuities).

This type of annuity continues payments to your survivor (e.g., spouse, child, or, even, friend) for the remainder of his or her lifetime, in the event of your death. While the initial monthly payment will typically be lower than with a single life annuity, a joint life annuity ensures continued benefits to the person who survives the longest.

4. “Term Certain” option.

An annuity can also be structured to make payments for a specific length of time. Should you die before that term ends, payments would continue to your beneficiaries until the end of the term. A lifetime annuity can similarly be set up to include a minimum number of payments.

5. Purchase an annuity that has guaranteed payments (for secondary market annuities).

Most secondary market annuities are scheduled to make either a series of guaranteed payments or a one-time lump sum payment in the future. This means that your payments are going to be made regardless of whether or not you are still alive. Through your payment servicing company, you will be able to designate beneficiaries that will receive your payments in the event of your passing.

As you can see, most income annuities can be tailored to your individual needs. There is no one-size-fits-all. Since each of the above options has its pros and cons, it’s a good idea to review your plans with a trusted advisor -- to work out which is the best option for your situation.