As a quick review, an annuity is a series of equal payments that occur over equally spaced time periods for a specified number of years that accumulate compounded interest with each payment.
The time period is typically 20, 25, or 30 years. Annuities can be payments you are making to mainly (but not solely) benefit someone else (such as for mortgage or rent payments) or as a personal investment that benefits yourself (such as IRA contributions, insurance premiums, etc.)
All annuities can benefit you in some way – even rent payments, because you are given something in exchange for your payments. You just won’t be able to receive any beneficiary privileges with rent payments, for example.
The wonderful thing about annuities from an investment perspective is that they can be there to protect and help loved ones who you chose as your beneficiary if you happen to pass away during the period in which annuity payments are still being made or even if you yourself were receiving your pay outs.
This type of annuity benefit during which payments are still accumulating is commonly called life income with refund annuity, or simply just refund annuity. This type of deal gives the premium (the payments) plus interest to the beneficiary upon the annuity account holder’s (annuitant’s) death.
If the death occurs during the period in which the annuitant is himself or herself receiving money from the annuity, the form in which the payments to the beneficiary are received would depend on the type of annuity it is. Is it in the form of life annuity certain? What about installment annuity refund?
Or could it be a cash refund annuity (also called a lump sum refund annuity)? The beneficiary would have to find out in order to receive any refund from the annuity.
Contributing to some sort of annuity over the course of one’s life is a great way to feel more secure with the future of a loved one who might need financial support if you were to pass away before they do.
Spouses and children are the most common beneficiaries of annuities, but grand children, close lifelong friends, and other family members are often seen as beneficiaries as well.