Annuitant

What Is an Annuitant?

The annuitant is the person whose life determines the annuity payouts. In the insurance industry, the annuitant is referred to as the “measuring life.”

Annuities are generally set up to provide lifetime income. This means that the annuity provider must use a real person’s life expectancy to calculate the annuity payment amounts. Every annuity contract must have an annuitant, and there cannot be more than one annuitant on a contract.

The annuitant is also the person who receives the income benefits of the annuity in most cases. However, the annuitant does not have the ability to decide or change the terms of the contract.

The role of annuitant often overlaps with another role in the annuity contract, the annuity owner.

The main thing to remember about an annuitant is that they are the ones who are actually receiving the benefits of the annuity contract while the owner may be someone else. An example of this is whenever one of my clients want to purchase an annuity for a child. The client retains ownership, but the proceeds go to the child because they are the annuitant.

John Stevenson, CFFOwner and Advisor at Stevenson Retirement Solutions

John Stevenson, a Certified Financial Fiduciary®️, specializes in securing retirements with tax-free accounts. With a focus on guaranteed retirement, he’s ensured none of his clients suffer from market fluctuations. As a renowned educator and podcast host, John empowers thousands weekly, sharing his expertise in minimizing taxes and protecting against financial downturns.

The Annuitant vs. The Annuity Owner

The annuity owner is the person who decides the terms of the contract, including the date on which income benefits begin, how long they last and who is named as the beneficiary. They pay the initial premium to the insurance company and have the authority to make withdrawals, change the beneficiaries named in the contract and terminate the annuity.

People often mistakenly believe that the owner of an annuity contract is always the annuitant. While it is common for the annuity owner to also be the annuitant, it is not a requirement, and many annuity owners choose to name someone else as the annuitant.

Annuity Owner vs. Annuitant

The Annuity Owner	The Annuitant
• Purchases and signs the contract. • Decides the terms of the contract. • Pays the initial premium. • Can make withdrawals or cancel the agreement. • Designates beneficiaries and chooses any death benefits. • Can receive annuity payments.	• Is the person whose life expectancy determines the payout. • Receives the annuity payments. • May or may not be the annuity owner. • Cannot contribute money to the annuity (if not the owner). • Cannot designate beneficiaries or change the contract (if not the owner). • Cannot make withdrawals until a defined date (if not the owner).

An annuitant who is not also the annuity owner does not have the authority to change the beneficiaries listed in the annuity contract or make any other amendments to the contract. Furthermore, he or she can’t contribute or withdraw money.

There are various reasons an annuity owner may decide to designate an annuitant other than themselves. By selecting a younger annuitant, for example, the annuity owner can stretch out the payments and defer the income tax owed on distributions for a longer period of time.

Distinguishing Between an Annuitant and a Beneficiary

Beneficiaries are the third named party to an annuity contract. Whereas the annuity owner and the annuitant may be the same person, a beneficiary is a separate person or entity.

For contracts with a death benefit, the beneficiary is entitled to receive such a benefit upon the death of the owner, annuitant or annuitants.

When an annuity owner’s spouse is the sole beneficiary of the contract, the spouse is permitted to assume ownership of the annuity, continuing to receive periodic payments and deferring income tax. 

This is not the case with non-spouse beneficiaries. A fundamental difference between spouse beneficiaries and non-spouse beneficiaries is the manner in which they are required to collect the funds.

Non-spouse beneficiaries have various options for collecting their annuity inheritance:

• Take a lump-sum distribution
• Collect the entire cash value of the annuity within five years of the annuitant’s death
• Annuitize the proceeds
• Take an annual required distribution based on his or her own life expectancy, known as the “stretch provision”

Since the passage of the SECURE Act, non-spouse beneficiaries of qualified annuities — annuities purchased with pre-tax funds like those from a traditional 401(k) — can no longer utilize the stretch provision for their inherited annuity. The law now requires beneficiaries to collect the entire value of the annuity contract and pay any taxes due on that amount within 10 years of inheriting the annuity.

Annuitant vs. Beneficiary

The Annuitant	The Beneficiary
• Is the person whose life expectancy determines the payout. • Receives the annuity payments. • May or may not be the annuity owner. • Cannot contribute money to the annuity (if not the owner). • Cannot designate beneficiaries or make changes to the contract (if not the owner). • Cannot make withdrawals until a defined date (if not the owner). • Cannot be the beneficiary.	• Receives any cash value of the annuity after the annuitant dies. • Is defined as spouse or non-spouse. • Cannot be the annuity owner or annuitant.

Lastly, a fourth designation that may exist in an annuity contract is the payee. The payee is the person who receives the payments from the annuity. The payee can be the annuitant, the annuity owner or a third party authorized to handle the annuity owner’s finances.

Joint Ownership vs. Joint and Survivor Annuities

Annuities can be jointly owned. If one owner dies, the death benefit is paid to the beneficiary even if the other owner is alive. At that point, payments to the second annuity owner stop.

To avoid this, consider a joint and survivor annuity that guarantees payments that last for the duration of your life and the life of one other person. This person, usually a spouse, is a second annuitant, not a beneficiary.

Joint and survivor annuities allow the surviving spouse to continue receiving payouts on the existing payment schedule. However, the arrangement will also prevent the surviving spouse from taking a lump sum from the annuity should they need it for unexpected expenses, like funeral and burial costs.

Another strategy would be for the owner of a single life annuity to name a second person as a beneficiary.

For example, imagine a husband who wishes for his wife to get his annuity payments upon his death, and later for their child to collect the proceeds after her passing. He can set himself as the owner and annuitant, his wife as the primary beneficiary, and the child as the next in line or contingent beneficiary. 

It’s important to understand the differences among these designations, including those between spouse and non-spouse beneficiaries, to ensure that you structure your annuity contract appropriately. 

If you have questions about the specific designations, payout options, tax implications or other features, contact a professional financial advisor for assistance.

Frequently Asked Questions About Annuitants