Beneficiaries receive a death benefit [1] when the owner of an annuity [2] or life insurance policy dies. Even the survivors of a person on social security [3] can receive benefits.
But with social security there is a catch: the spouse has to be living with the deceased at the time of death in order to collect these benefits. In the event that there is no surviving spouse and there are minor children involved, these children are eligible for a monthly social security stipend.
When buying an annuity, the investor should be aware that not all death benefit packages are alike. The investor should read the fine print even though full disclosure [4] is the industry standard when outlining survivor benefits included in an annuity. Sometimes a beneficiary receives a lump sum when a policy holder dies. Some annuities offer survivors a percentage of the pension a policy holder was receiving on a monthly basis.
The recipient of benefits from a life insurance policy pays taxes only on any interest accrued above the benefit package. This would be considered taxable interest.
In the event that an annuity holder dies before annuity payment benefits start, beneficiaries named in a guaranteed death benefit agreement included in the annuity policy receive benefits equal to the invested amount or the value of the policy in the last yearly statement. The benefit amount is determined by which amount is higher.
Anyone buying an annuity needs to fully understand what is included in the death benefit clause in their policy.