Annuities are insurance products that are designed and sold by life insurance companies. Annuities help you save money for your retirement. They do this by allowing after-tax contributions and offering tax-deferred growth of your savings. However, sometimes a husband and wife may want to own an annuity together. These types of annuities are called joint annuities.
There are two ways to own an annuity jointly. You may purchase an annuity with joint ownership or you may purchase a joint and survivor annuity. Both types of policies arrange the policy ownership between two individuals.
The significance of a jointly owned annuity is that the annuity functions like any other annuity. When the first policyholder dies, a death benefit is paid out to the beneficiary. With a survivorship annuity, the policy continues to support the surviving spouse.
The benefit of a jointly owned annuity is that, if the surviving spouse is named as the beneficiary, then the annuity pays a lump sum to the surviving spouse. Alternatively, the surviving spouse has the option to receive a lifetime income from the annuity. The benefit of the survivorship annuity is that the surviving spouse keeps receiving the same annuity payment as before and does not have to make the decision of what to do with the annuity proceeds.
The disadvantage to a jointly owned annuity is that there may be additional tax due on the annuity if the surviving spouse elects to receive a lump-sum payment. The disadvantage to a survivorship annuity is that, if the surviving spouse needs a lump-sum payment, she won't receive it from the survivorship annuity.
When considering how to purchase your annuity jointly, consider what you want to have happen when you or your spouse dies. You'll need to be able to pay for funeral costs and burial expenses. You must also consider whether you (or your spouse) would prefer to have the choice of how you receive the annuity inheritance.
- "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004
- "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A. Crane; 2007
- "Life Insurance"; Kenneth Black, Jr., Harold D. Skipper, Jr.; 1994
- IRS: Publication 575