The death benefit is the amount paid to your designated beneficiary when the annuity owner or annuitant dies. For most MYGAs and fixed annuities, the death benefit equals the full account value at the time of death, including all accumulated interest.
How Annuity Death Benefits Work
If you purchase a $100,000 MYGA and pass away three years into the contract with an account value of $117,000, your beneficiary receives the full $117,000. Surrender charges are typically waived at death, meaning your beneficiary gets the full value regardless of where you are in the contract term.
The death benefit is paid directly to the named beneficiary and generally bypasses probate, which can speed up the transfer of funds. For more detail on how this works, see what happens to your annuity when you die.
Tax Implications for Beneficiaries
Beneficiaries owe income tax on the gains portion of the death benefit (the amount above the original premium). They do not receive a step-up in cost basis like they would with many other inherited assets.