Contingent Annuitant: What it Means, How it Works, Options

What Is a Contingent Annuitant?

A contingent annuitant is someone designated by an annuitant to receive the annuitant’s payments when they pass away. When an annuity has a contingent annuitant, the annuity does not stop making payments until both the annuitant and the contingent annuitant have passed away. If the policy does not allow for a contingent annuitant, the annuity stops making payments when the annuitant dies. A contingent annuitant can be thought of as the second beneficiary of an annuity.

How a Contingent Annuitant Works

An annuity is a financial product that pays a fixed income stream to an individual. Annuities are typically used by retirees and are sold by financial institutions. The buyer of the annuity, known as the annuitant, pays a lump sum or a series of payments over time, which are invested by the financial institution or insurance company.

Depending on the type of annuity, at some point, the financial services provider pays the annuitant a stream of income payments. Some annuities might pay for a set period, such as 10 years, while others might pay for the remaining lifetime of the annuitant.

For the same initial lump sum (or principal), an annuity that provides for a contingent annuitant may make lower payments to the annuitant and the contingent annuitant during their lifetimes. This is practiced because the annuity is expected to pay out for a longer period than an annuity that terminates when the annuitant passes away. It is a means of stretching out the funds further in time.

In most cases, once payments start on an annuity, a contingent annuitant's name may not be changed. In other words, the contingent annuitant can be an irrevocable beneficiary, meaning the person designated to receive the assets from the insurance policy can't be changed by solely the owner, but instead, must have the beneficiary's consent as well.

This is true even if the contingent dies before the original annuitant. Contingent annuitants tend to be spouses or domestic partners.

Annuity providers will help annuitants decide which payment options to choose. For example, the benefit for a surviving annuitant might be 50% to 100% of the original annuitant's benefit payment. Higher payments for the contingent tend to mean lower payments for the original annuitant.

Contingent Annuitant Annuity Options

Annuities are meant to provide a stable source of income, usually to retirees in the form of recurring monthly payments, though they may be quarterly or annually as well. There are many different types of annuities, so consumers can choose one that fits their unique circumstances, budget, age, life expectancy, and the desire to provide for a surviving spouse.

Some annuities pay out for a predetermined number of years no matter what (period certain annuity), and if the annuitant dies during that period, the remaining payments go to the annuitant’s beneficiary. Other annuities pay out only until the annuitant passes away. Still, others keep making payments until the contingent annuitant dies.

Joint and survivor annuities are designed to provide stable income to each spouse even after one spouse passes away. Upon the first spouse’s death, these annuities might continue to pay the same monthly benefit, or they might pay two-thirds or one-half of the original monthly benefit.

There are annuities that let people invest gradually during their working years and others that can be purchased with a lump sum. How much the annuity costs depends on how much the annuitant wants to receive in monthly payments, the annuitant’s life expectancy, and other annuity features, such as whether the annuity will have a contingent beneficiary. Basically, the more the insurance company expects to pay out, the more the annuitant will have to pay in.