If an annuity owner dies during the accumulation phase and a beneficiary has been named, the beneficiary typically receives:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
During the accumulation phase, most deferred annuities provide a death benefit payable to the named beneficiary if the owner dies before annuitization. The benefit is generally at least the accumulated value of the account, and many contracts guarantee that the beneficiary receives no less than the total premiums paid. The tax treatment matters: the portion of the payment representing gain over the cost basis is taxable as ordinary income to the beneficiary, while the return of principal is not. Beneficiary designation on an annuity therefore provides family protection while deferring the tax on growth until distribution.
Why the other options are wrong
- B) Most deferred annuities guarantee that the beneficiary receives at least the account's accumulated value, which is normally greater than the total premiums paid once growth and credited interest are added. Paying only bare premiums would shortchange the beneficiary.
- C) The death benefit under an annuity is triggered by the owner's death during the accumulation phase, and the annuitant's status does not affect the beneficiary's entitlement.
- D) No annuity contract guarantees a 10 percent annual return; that figure is fabricated. The death benefit is based on contract terms and credited performance, not on an invented fixed rate.
Memory hook
Owner dies in accumulation → beneficiary takes the account value, with gains taxable.