A cash repayment annuity allows a beneficiary to receive payments from the plan if the annuitant dies. The remaining balance can be paid in one installment or a series of payments. Multiple beneficiaries can be designated, and the asset does not need to go through probate. It is important to compare offerings from different providers to find the best plan.
A cash repayment annuity is a type of annuity agreement that allows an annuitant to designate a beneficiary who can receive payments from the plan should the lender decide. Typically, the remaining balance in the annuity plan is paid to the beneficiary in one installment, although some plans allow the balance to be paid in a series of payments instead. This approach can be helpful in providing for a loved one should the annuitant die suddenly.
Structuring a cash repayment life annuity requires the designation of a payee who will receive the annuity balance upon the obligee’s death before the balance is exhausted. For example, if an individual has taken out an annuity as part of a strategy to create an income stream once he or she retires, annuity disbursements will begin when the annuity reaches retirement age. If the creditor dies a few years after retirement and leaves a balance in the cash repayment annuity, the insurance company administering the plan will forward any remaining balance to a loved one designated as the beneficiary.
Some cash-redeemed annuity plans will allow for more than one beneficiary under this type of arrangement, effectively establishing a priority list of beneficiaries who can be employed if some of those beneficiaries are also deceased. This means that if the creditor has designated a spouse or partner as the beneficiary of choice but that person is also deceased, the insurance company can move on to the next beneficiary on the list. Some annuity plans are structured to allocate equal parts of the remaining annuity balance to all living beneficiaries, allowing the beneficiary to provide eventual support for more than one loved one.
The advantage of using a cash repayment annuity is that there is no question of what will be done with any remaining balance in the plan if the lender suddenly dies. The asset does not need to go through a probate process, which can be an advantage if the beneficiary is a spouse or partner who is responsible for paying the recently deceased annuitant’s end-of-life expenses. As with any annuity plan, the goal is to compare offerings from different providers and settle on the plan that will ultimately offer the best interest rates and terms, as well as allow funds from the annuity to be disbursed in a way that is in line with with the wishes of the annuitant.
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