What is an Annuitant?
An annuitant is an individual who receives payment from an annuity, a specialized type of account that makes payments to the annuitant on a predetermined schedule.
An annuity is essentially an account set up to hold a sum of money that is then slowly distributed to an individual in the form of regularly scheduled payments. The account usually earns interest.
Any individual who receives payment from an annuity is called an annuitant.
People might establish an annuity and become an annuitant to provide an income stream during retirement, for example. Others set up an annuity after winning a court settlement. That way, the money gets distributed over time, making it easier to manage and ensuring it lasts through the years.
Annuitants of life insurance payouts
Through the decades, most life insurance payouts have been distributed to the beneficiaries as lump sums. Many people struggle to manage this windfall, though, and find themselves burning through the money too quickly.
To prevent that and build in a financial management component, many life insurers now give beneficiaries the option to establish an annuity. In these cases, the life insurance payout gets put into an account, then distributed to the beneficiary at the rate they choose, usually monthly, quarterly, or annually.
The amount the annuitant receives depends on the type of annuity they choose. Some people opt for a lifetime income annuity, which guarantees that they will receive regular payments for the rest of their life. In these cases, the insurance provider calculates the fixed amount of each payment based on the annuitant’s life expectancy. When the annuitant dies, the payments stop, regardless of whether or not they’ve expended the full amount of the life insurance death benefit.
Other people choose to establish a fixed amount annuity. In these cases, the annuitant receives regular payments for a set amount of time.
Pros and cons for life insurance annuitants
Using a life insurance payout to establish an annuity can ensure that you have a reliable income stream for decades to come.
That said, an annuity isn’t right for everyone. It may be better to take the payout as a lump sum and use that money to, say, pay off your mortgage, avoiding future interest accrual.
Ultimately, because life insurance payouts are usually large sums of money, most individuals benefit from consulting with a qualified financial advisor about how best to use the funds to achieve their specific financial goals.