Brad Rhodes: Who gets money from your annuity if you die?

Published 12:00 am Thursday, September 15, 2022

Getting your Trinity Audio player ready...

If you buy an annuity and die, the insurance company keeps your money. We have all seen and heard that broad statement. Is it true?


Here is a secret about insurance companies that puts everything in perspective. Insurance companies do not make decisions based on individuals; they make decisions based on a large pool of people.

Their tool? The Commissioners Standard Ordinary Mortality Table, known as CSO. The statistical table allows insurance companies to know precisely how many people in a specific age group will die nationally. It is not a guess, and it is pure science.

This table is so important because it allows insurance companies to set rates for calculating retirement benefits for anyone at any age.

For example, let’s estimate that a male age 65 with $100,000 in a retirement account could receive $600 a month for life. Insurance companies know precisely statistically how many men age 65 will live and die each year; they also know the life expectancy for a male age 65 is 20.5 years.

What happens if an individual age 65 lives until age 100? What happens to the retirement funds placed in the annuity? Did it stop at his life expectancy? (85.5 years) No, it continued until his death. Annuity payments for life are fully guaranteed, and the insurance company will continue to pay and pay and pay.

How can they do that? Knowing how many men age 65 will die each year would mean that another manage 65 didn’t live until life expectancy.

It is called the Law of Large Numbers.

The man who died early, did the insurance company keep his unused funds? No, all remaining funds for anyone who dies prematurely will be returned intact to the annuitants named beneficiary. All the instance company makes is the extra yield from the original deposit; no insurance company will ever profit from death.

So what is the lie? Those who do not understand how an annuity works or a competitor in the annuity industry will use half-truths to gain a competitive advantage over a prospect that is not fully informed.

Annuities mean guarantees, which can mean lifetime income without fear of losing the retirement benefit. Annuities should be considered when planning the foundation of your retirement plan. They layer guaranteed income on top of your social security benefits and your pension retirement income to form the basis of your retirement.

Also, avoid any costs or delays in transferring your annuity value at your death to anyone you wish; name a beneficiary; it is easy.

Brad Rhodes is a member of Syndicated Columnists. He lives in Lexington.