Whether it’s fixed, index, variable, immediate, or deferred, all annuity contracts share the same basic components. For example, every annuity has an owner, an annuitant, beneficiaries, and an issuer. When buying an annuity contract, you need to name all the players and their respective roles in the contract.
The owner of an annuity is just that…. the owner. This person pays the premiums, signs the application, agrees to abide by the terms of the contract, decides who the other parties of the contract will be, can withdraw money from the annuity (depending on the limits of the contract), and is liable for any taxes that are due. Two people can own an annuity contract jointly. The owner should be a person, but it can also be a trust that represents the interest of a person. If one owner dies, the joint owner takes over the contract.
The annuitant is the person whose life expectancy the annuity payments or income rider payments will be calculated. If and when the owner decides to start taking a guaranteed lifetime income from the annuity, the size of the payments are based on the annuitant’s age, not the owner’s. Most of the annuity contracts that we see written today have the owner and annuitant as the same person, but that is definitely not required. Remember though, that an annuitant has to be named even if it is you.
A beneficiary is the person designated to receive assets upon someone else’s death. When filling out an annuity contract application, the owner names his own beneficiary and also the annuitant’s beneficiary. The owner and the annuitant can be each other’s beneficiary, which definitely makes things easier, but no one can be his or her own beneficiary. So you have the contract owner’s beneficiary, which is the person who receives the accumulated value of the contract if the owner dies before converting the contract to income. And you have the annuitant’s beneficiary, which is the person who receives the death benefit if the annuitant dies before the contract is converted to an income stream.
Finally, the insurance company that issues the contract and puts itself on the hook for any guarantees in the annuity contract is the issuer. Most annuity sales come from the largest and most stable insurance companies. These companies generally have excellent, strong, or superior ratings. However, the rating should not be your only consideration and you don’t necessarily have to choose the company with the highest rating.
If you have any questions about the components of annuities or even about the ratings of insurance companies, please feel free to reach out to us at Annuity Think Tank at (888) 282-3653 or email us at firstname.lastname@example.org.