Opinions on death benefit annuity riders are wide-ranging. While your monthly payments will be smaller with such a rider, your money is not lost to your family should you die sooner than expected. When the annuitant dies, any listed beneficiary will receive the annuity’s proceeds. You can name one or more people, a trust, or even an organization as your beneficiary. Beneficiaries can take the annuity money in either a lump sum or as periodic payments. Since many annuities defer taxes, the beneficiary will have to pay taxes on any money earned above the initial deposit. The IRS gives beneficiaries five years before they have to start collecting their annuity money and paying the corresponding taxes.
There are a lot of annuities that offer a “step-up” on the yearly anniversary date that you purchased the annuity. Your annuity value would increase to the highest amount it was at on any past anniversary date. Some annuities guarantee interest compounded annually at 5% to 7%. There are variable annuity products which offer a combination of both of those benefits, so you would get the greater of the “step-up” or the guaranteed interest. If you happened to die at a time when your annuity was down, your beneficiaries would receive the highest anniversary or interest rate amount from your annuity. Death benefits typically cost between .05% and .50% in yearly expenses.