Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: Apr 3, 2022

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If I am listed as the beneficiary on an annuity do I have to pay taxes on it?

If you are listed as the beneficiary of an annuity, you will not have to pay income taxes on the death benefits you receive from it. There may be an inheritance tax or estate tax that applies to the amount.

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The financial planner, the insurance company or the agent who sold the annuity should be able to inform you of whether or not one of those taxes applies.

Understanding Annuities

Annuities are investments that allow you to ensure a future income for yourself and defer taxation on a portion of your income now. It is a very common retirement strategy that many people employ. All insurance companies that offer life insurance will also offer annuities. In fact, many people opt for annuities over life insurance for a variety of reasons.

When you take out an annuity, you will either pay for it in one lump sum or, more commonly, pay for it monthly over a period of many years. Following a pre-set period of time you will begin to receive monthly payments from your annuity for the remainder of your life. The lump sum payment is a good option for those who come into a large amount of money at once and want to make sure it lasts for the remainder of their lives.

As a part of your annuity, you may assign a beneficiary who will receive benefits from your annuity if you die before the annuity is finished paying out. This individual will receive death benefits, similar to a life insurance policy. It is a good idea to notify beneficiaries of that fact and to keep annuity companies up to date on current contact information for beneficiaries.

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Why Individuals Opt For Annuities

Annuities are a very low-risk form of investment. In fact, certain types of annuities offer ultra-low risk annuities that have no chance of losing value and increased chances of growing when the economy is right. Those who gravitate towards low risk investments love annuities.

Individuals who are worried about retirement or feel that Social Security is not going to be sufficient are opting for annuities. A guaranteed future income is very comforting in an era where companies with pension plans are very rare.

If you want to defer taxation on your present income, an annuity is a very easy way to do so. The fact that you are guaranteed to get your money back, and more, later in life when your income is likely to be lower makes it a smart choice for many. Guaranteed return on investment is hard to come by in today’s economy.

Those who opt for annuities are typically people who have an emergency fund accumulated to cover unexpected expenses. Such individuals understand that the major drawback of annuities is the fact that they are not a very liquid investment. You can lose a significant portion of your investment in fees if you withdraw your money too prematurely. The other disadvantage is that annuities tend to have higher handling fees than many other investments.

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Compare Annuities Now

If you are in the market to purchase annuities, you should take the time to learn about the different types available to choose from. Then you need to get a variety of quotes from different insurance companies that sell the type of annuity you are looking for. Carefully compare the details of each annuity and the company itself prior to making a decision.

An annuity is something you will keep for an extended period of time before your investment comes back to you. Therefore you need to be sure that the company you purchase from is one that is financially stable and will be around to pay out your money when the time comes.

To investigate the status of an insurer you are considering buying an annuity from, check one of the independent insurance ratings firms like A.M. Best, Moody’s or Standard & Poor’s. They grade insurers on their financial strength and their ability to meet current and future obligations.

You may also want to check out a company’s track record with customers by contacting your state department of insurance. They track complaints filed against every insurer and how they are resolved. Avoid companies plagued by unsatisfied customers. Doing an online search can also reveal a lot about how an annuity company treats its customers.

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