Annuitant vs. Owner

Annuity contracts have four parties to the contract, two of which are often confused: the owner, the annuitant, the insurance company and the beneficiaries. The owner and annuitant of an annuity contract are sometimes used interchangeably, but each has its specific purpose to the function of the contract.



An annuity is a contract between the insurance company, the owner and the annuitant. The owner pays the premiums to the insurance company and is responsible for any tax liabilities resulting from the payment of benefits. The benefits are paid based on the annuitant's life. If the annuitant is alive and lifetime income is elected through annuitization, the payments will be based on the life expectancy of the annuitant. If the annuitant dies, the beneficiaries are paid the death benefits by the insurance company.


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When buying an annuity contract, the owner and annuitant are often named as the same person. This eliminates any confusion about who's life and who's social security number the benefits are paid upon. When the owner and annuitant are the same person, the benefits and all the taxes associated with those benefits are applied to the same person.


Contract Structure

Not all annuities are structured the same, according to the Fixed Annuity Guide at While the traditional method of designing an annuity is to have the contract based on the annuitant's life, some annuities are owner-driven rather than annuitant-driven. An owner-driven annuity takes the opposite structure of the annuitant-driven annuity. When an annuity is owner-driven, benefits are paid to the annuitant when the owner dies, not the beneficiaries. Insurance companies determine the structure of the annuity contracts they offer to customers. According to the Fixed Annuity Guide, customers should inquire with the insurance company selling the annuity about the annuity structure prior to it and designating the owner, annuitant and beneficiary.



When an annuity contract names an owner different from the annuitant, special consideration should be taken when naming the beneficiaries, according to Steve Sternberger, a business and estate advisor. If the beneficiaries are paid a death benefit under an annuitant-driven contract, the owner is considered to have given the beneficiaries a third party gift and taxable as such. In the case where benefits are paid under an owner-driven contract, the annuitant receives the benefits, not the named beneficiaries. In an owner-driven contract, the annuitant and beneficiary should be the same person to avoid undesired tax implications upon paid death benefits, according to Sternberger. It is also important to consider that in an annuitant-driven contract, if the owner dies, the contract must be completely distributed within 5 years, according to Internal Revenue codes known as the "death of the owner rules."



Being able to choose the different annuity structures and name different parties as owner, annuitant and beneficiaries allows investors more control over the assets, provided they understand how to make the designations. In annuities with joint owners, both should be named as joint beneficiaries to ensure that the surviving owner maintains control of the assets and avoids taxation at the death of the first, according to Sternberger. Another significant advantage to being able to name different parties is that a child can purchase an annuity for an aging parent, maintaining the assets and tax liabilities in their own estate but provide an income for the parent. This helps mitigate assets owned for Medicare or Disability insurance regulations.