What is an 'Annuitant'

An annuitant is a person who collects the benefits of an annuity or pension, or named in a specialized life insurance contract. The annuitant is the beneficiary of an annuity or pension. An annuitant can be the contract holder or another person. The beneficiary receives the proceeds of the annuity contract upon the annuitant's death to shield the beneficiary from a loss of income.

BREAKING DOWN 'Annuitant'

An annuitant is one or more individuals, or a special class of government employee who receives periodic payments for life or during a specified period of an annuity contract. The owner can name one or more annuitants. Some contracts allow the owner to name joint annuitants. An annuitant must be a natural person and cannot be a company or a trust.

The annuitant is the person whose life expectancy and age insurers use to calculate the annuity payments. For example, if the owner is 65 years old, but the annuitant is his 60-year-old wife, then the insurance company assumes it must make monthly payments to her for approximately 24 years, which is the life expectancy of a 60-year-old woman. For a married couple, an annuitant is usually the spouse of the annuity owner.

The Role of Annuitants

People can buy annuities for themselves, which designates them as annuitants. Others can also purchase them on behalf of someone else, such as relatives, friends or employees. An annuitant may also share benefits, such as when a couple purchases an annuity jointly and designate each other as annuitants when the other spouse dies.

Annuitants receive a specified amount of money every month as defined in the annuity contract. If the annuity owner dies after annuity payouts begin and the annuitant is still living, the beneficiary receives the payments, premiums paid and any interest earned. If an annuitant dies during the annuity accumulation period, the beneficiary receives the cash value of the annuity or the total premiums paid, whichever is greater.

The owner makes the selections regarding the annuity, such as the amount of money to invest and how to allocate the money. The owner also designates the beneficiaries. Some annuity companies require the annuitant and the owner to be the same individual. However, most companies specify that the annuitant and the beneficiary cannot be the same person unless the annuitant and the owner are separate people. The annuitant also has the power to transfer ownership of the annuity to another person. The annuitant and the owner can be each other's beneficiary.

Taxation of Annuitants

Usually, the IRS taxes the owner on annuity payments. If the annuitant and the owner are the same person, the person is taxed. In addition, some contracts state that the annuitant becomes the owner of the contract after the annuity commencement date. In this instance, the owner is liable for any tax on the income-taxable portion of the annuity payments. If an annuitant receives a distribution before age 59 ½, a 10 percent tax penalty is applied.

RELATED TERMS
  1. Certain And Continuous

    Certain and continuous is a type of annuity that guarantees a ...
  2. Investment in the Contract

    Investment in the contract as applied to annuities is the principal ...
  3. Period Certain

    Period certain is a life annuity option that allows the customer ...
  4. Annuity Certain

    Annuity certain refers to an annuity contract that provides a ...
  5. Life Annuity

    A life annuity is an insurance product that features a predetermined ...
  6. Annuity Consideration

    An annuity consideration is the money an individual pays to an ...
Related Articles
  1. Investing

    Is Annuitization Your Best Strategy?

    Annuitization offers annuity owners an income stream they can't outlive, but there are pitfalls.
  2. Retirement

    What Is the Best Age to Get an Annuity?

    Optimizing the benefits of an annuity means guaranteeing a stream of income you can't outlive.
  3. Investing

    Just Say No to Variable Annuities

    Sellers of variable annuities make them sound great to earn their commission, but they are not.
  4. Financial Advisor

    Advising FAs: Explaining Annuities to a Client

    Conceptually speaking, annuities can be thought of as a reverse form of life insurance.
  5. Investing

    Consider These Facts Before Choosing a Variable Annuity

    Variable annuities do have some benefits, but there are some disadvantages and misconceptions to take into account as well.
  6. Retirement

    How a Fixed Annuity Works After Retirement

    These popular investments can provide a steady stream of income during your retirement years. Here are the details.
  7. Retirement

    Personal Pensions: Repackaging The Annuity

    Discover an investment that can provide a stable income once you've left the work force.
  8. Investing

    An Overview of Annuities

    As part of your overall investment strategy, annuities may add value to your retirement in more ways than you think. Here's how they work.
Trading Center