Can I build death benefit into my annuity?

11th January 2012

When it comes to purchasing an annuity if you are in a relationship or have a family, one of the most important considerations that you may make is what will happen in the event of an unexpected death. If you die early into your annuity period you may choose to take precautions which ensure that your family or significant other is covered financially and this could be seen as building a death benefit into your annuity.

There are many ways that you could contemplate doing this, but this article will discuss the three main options; joint life annuities, the annuity guarantee period and value protection.

Joint life annuity

One of the easiest ways to guarantee a death benefit to your partner is by purchasing a joint life annuity. This ensures that your partner will continue to receive the annuity income even if you die early into the annuity period. A joint life annuity will take into consideration the circumstances of both partners so you may receive less income than you would from a single life annuity, however you will have the peace of mind that your loved one will be financially cared for in the event of an unexpected death.

Annuity guarantee period

For a small percentage of your annuity income you can take out what is called an annuity guarantee period, this is a period of time over which your annuity will be paid, regardless of your circumstances. In general these guarantee periods are taken out for anywhere between five and ten years after you take out your annuity and ensure that regardless of a death, the annuity is paid during this time. If you were to die during this time then the remainder of your annuity would be paid to your beneficiary, minus tax.

Value protection

This relatively new concept comes into play should the annuitant die before the age of 75. In this case, the beneficiaries will receive any unpaid annuity income, which will then be subjected to a tax rate of 55%. This is designed to safeguard any annuitants against losing their entire annuity income due to an early death.

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