Annuities are contracts between an individual and an insurance company. These contracts allow for the naming of a beneficiary in the event of death of the annuitant. Because this is a contract, the beneficiary will receive the value of the annuity without the need of estate probate. The funds are paid immediately as directed by the contract to the beneficiary.
Typically, a named annuity beneficiary can claim assets as soon as the decedent’s death is documented. A beneficiary designation normally supersedes the instructions in a will which makes the funds available sooner.
By assigning a beneficiary, the owner or annuitant makes it clear who should receive proceeds of any asset in the event of their death. This eliminates any questions or disputes among family members and friends who might contend the benefit.
There are two basic types of beneficiaries: Primary and Contingent
Primary beneficiaries are the annuity owner’s first choice for a beneficiary. In the event of death, the first person who can claim the assets is the primary beneficiary. It is possible and quite common to name more than one primary beneficiary. The funds from the annuity will be split equally or in any percentage as directed by the owner of the annuity.
Contingent beneficiaries are the backup beneficiaries who become primary beneficiaries in the event the original primary beneficiary is deceased.
Under normal situations, the owner of the annuity can change the primary and contingent beneficiary any time they desire. Great care should be taken when selecting the beneficiary and the selection should be made in consideration of the goals of the annuity.