Annuity Death Benefit

Nov 5, 2015

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  1. inreverse
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    inreverse Guru

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    How does the death benefit from an annuity compare to the death benefit from life insurance, as far as the IRS is concerned?
    Thanks for you response
     
  2. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    Both are a part of your estate and may be subject to estate taxation, depending on the size of the estate.

    However, as far as income taxation, life insurance death benefits are received income tax free.

    Annuities don't have a 'step-up' in basis at death - whether qualified money or gains in non-qualified contracts. So once beneficiaries receive the proceeds, either the total balance (qualified) or the gains (non-qualified) become taxable.

    As far as annuity death benefit riders are concerned, I've never used them. I *believe* the idea is to enhance the balance so that the death benefit rider helps to pay any taxes on the balance or gains so there is a larger balance that can be received by beneficiaries after taxes.
     
    DHK, Nov 5, 2015
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  3. securico
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    securico New Member

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    HUGE difference. Life insurance death benefits are TAX FREE…..Annuity DB’s are not. If the client is healthy and looking to pass down money to their estate, always go with Life Insurance!

    Dan
     
  4. walthamny
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    walthamny Guru

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    I use annuity death benefit riders for uninsurable people all the time. I just had someone who wanted life insurance and could not qualify because he has a high PSA levels. This test is well known for its share of false positives for prostate cancer. Unfortunately no carrier would touch him. So the solution was annuity with this rider. I also sell this on annuities when someone is HIV positive or has parkinson. I have never sold this for the tax reason.
     
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