Key Takeaways
- A contingent annuitant (or secondary annuitant) is designated to receive annuity payments after the primary annuitant’s death.
- A joint and survivor annuity includes both a primary and a contingent annuitant. Payments continue as long as at least one of the annuitants is alive, ensuring continuous payments regardless of which annuitant dies first.
- Annuities with a contingent annuitant typically offer lower payments than single annuitant annuities.
- The contingent annuitant’s income payments can range from 50% to 100% of the primary annuitant’s payment. A higher benefit election for the contingent annuitant results in lower payments to the primary annuitant.
What Is a Contingent Annuitant?
A contingent annuitant, often called a secondary annuitant, is an individual designated to receive an annuity’s payments after the primary annuitant dies. When an annuity includes a contingent annuitant, its payments will continue until both the primary and secondary annuitants are deceased.
Annuities with more than one annuitant are known as joint-and-survivor annuities.
A joint-and-survivor annuity provides a payment stream for as long as one of the two named annuitants is alive. Whether the primary or the contingent annuitant dies first does not matter; the terms of the contract ensure a continuous payment.
Similar to naming beneficiaries, adding in a contingent or second-level annuitant is important for legacy planning. Typically the contingent annuitant is a spouse and the annuity income is a key part of their retirement income plan. In the case of a spouse’s death, their Social Security income will end. The loss of dependable annuity income as well could be destabilizing for their lifestyle.
Stephen Kates, CFP®Principal Financial Analyst for Annuity.orgStephen Kates, CFP® is a personal finance expert specializing in financial planning and education. He serves as the Principal Financial Analyst for Annuity.org, where he delves into industry trends to support consumers and financial advisors on wealth management, annuities, retirement planning, and investing.
Generally, an annuity that includes a contingent annuitant makes lower payments than one with a single annuitant. Moreover, the greater the life expectancies of the primary and secondary annuitant, the smaller the distribution payment.
A joint-and-survivor annuity’s payment amount is also influenced by the benefit election for the contingent annuitant. Usually, this ranges from 50% to 100% of the payout made to the primary annuitant. The higher the benefit election, the lower the payment made to the primary annuitant.
Let’s clarify all of this with an example.
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Contingent Annuitant Example
Joseph, a 55-year-old man, has decided to buy a $500,000 deferred fixed annuity as part of his retirement plan. The contract, which names him as the annuitant, specifies a 10-year accumulation period and monthly income distributions of $5,000 for life starting at 65 years old.
The terms make sense to Joseph, but he’s worried about his wife, Phoebe. He wants to make sure she’ll continue to receive some income — in the event he dies before her. The annuity provider explains how this can be achieved via a joint-and-several contract, with Phoebe as the contingent annuitant.
Joseph elects to purchase the joint-and-survivor annuity, with a 100% benefit election for Phoebe. Ultimately, this results in a monthly payment of $4,000 that will continue for as long as either Joseph or Phoebe lives.
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Frequently Asked Questions
A contingent annuitant is included in an annuity contract when you want to provide ongoing financial security to another individual. A joint-and-survivor annuity ensures your loved one will continue to receive income after your death.
Most joint-and-survivor annuities name the primary annuitant’s spouse or domestic partner as the contingent annuitant. However, anyone can be named as a contingent annuitant.
Generally, once an annuity starts making payments, the contingent annuitant cannot be changed. However, if the contingent annuitant dies before the primary annuitant, the contract owner may have the option to name a new contingent annuitant. It depends on the terms of the contract.
A contingent annuitant is not to be confused with an annuity’s beneficiary. For an annuity that contains a death-benefit provision, the beneficiary is the person who is entitled to receive the remaining cash value of the contract upon the death of the annuitant — or annuitants, in the case of a joint-and-survivor annuity.
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