Annuity Joint and Survivor Insurance Products Explained

A joint and survivor annuity is an insurance product often purchased by older couples or those looking for long-term income security if one partner passes away. This coverage is designed for couples or spouses and means that if one person dies, the other will continue receiving financial payments, often for life.

Joint and survivor annuities have varied conditions and clauses, but the principle is that, depending on the insurance product, those payments will last for life without a maximum age or cut-off point. Insurance providers often refer to the surviving spouse or partner as the secondary annuitant.

Typically, payments drop to around 50% to 75% of the original value once one policyholder dies. However, there may be the option to name a third-party beneficiary, such as a child, if both insurance policyholders die before the payments reach a certain value.

Joint and survivor annuities function as an insurance agreement. As with all types of insurance, the exact terms and structure of the annuities may differ, but the norm is for the annuity to be guaranteed for life.

Many joint and survivor annuities provide a tiered payment system. If one spouse or partner dies, the surviving partner will receive ongoing financial payments, although these are usually based on 50% to 75% of the initial payments.

Some joint and survivor annuities will continue making payments to 100% of the original value, although the premiums associated with this payment structure will also generally be higher. Therefore:

• The annuity may begin making payments to the couple based on a set value.
• When one policyholder dies, those payments might continue but at a lower rate.
• This information is often conveyed in the name of the annuity product–for example, a 50% joint and survivor annuity pays the surviving annuitant 50% of the initial value.

Usually, a joint and survivor annuity that pays out 100%, or close to that level, to a surviving policyholder will also have lower initial payments. The financial payment amounts are often guaranteed irrespective of which partner passes away first.

Payments are reliant on several variables, such as the amount invested in the annuity, the couple's life expectancy, and whether the annuity provides fixed or variable payments. In the latter, the annuity may be linked to investments or market performance.

Joint and survivor annuities often appeal to older couples and those approaching or in retirement because they can convert their savings into guaranteed life income. You may have the option of choosing between:

• A stable income for life, with a consistent or similar payment value continuing if one partner dies
• A higher initial payment value, followed by a drop of between 25% and 50% after the death of one policyholder

We'll recap some of the main benefits and pitfalls shortly. Still, it is important to review the fees, and any commission charges associated with an annuity and compare the payment structures available to ensure these are consistent with your expectations. 

The positive aspect of a joint and survivor annuity is that both policyholders have the assurance of a set income, even if they live longer than expected or are concerned about whether their retirement savings will last long enough.

Increasing average life expectancies means that many more people reach older ages, and having an annuity can be seen as a backup plan or a financial cushion that will help guarantee an income in older age. Joint and survivor annuities can also be an option for couples looking to ensure a surviving spouse or partner has an ongoing income, especially if they are financially reliant on the other.

The terminology used in joint and survivor annuities is relevant. The second person is not a beneficiary of the annuity product held by the first. Instead, they are an annuitant, which can have beneficial impacts from a tax perspective.

While there aren't any particular downsides with a joint and survivor annuity, this type of insurance product is not for everyone. It may not necessarily fit into the financial plans of a younger couple, for example, who could decide that another product is more convenient or offers a greater opportunity to accumulate value over a longer period.

Other couples may decide that an alternative investment or product with a lump-sum payout is more suited to their needs, where a surviving spouse would receive a payment on the death of their partner but in a different structure. The key is to review the terms, payment values, and costs, weigh up how well these fit into your long-term financial plans, and compare any annuity or life product you are considering purchasing against all the other options.

How Are a Joint and Survivor Annuity and a Jointly Owned Annuity Different?

A joint and survivor annuity is a distinct product. Jointly owned annuities are different and mean both policyholders own an annuity together. When one person dies, this will usually initiate a lump-sum death benefit payment to the other.

What Happens if Both Annuitants Die Soon After Purchasing a Joint and Survivor Annuity?

Most insurance companies offering joint and survivor annuities provide life-long payments to a partner or spouse named in the annuity product agreement. However, some will offer the option of naming another beneficiary, such as a dependent child, who will receive the payments, often up to a maximum age.

When Is a Joint and Survivor Annuity the Best Life Coverage Option?

Couples without a secure or robust retirement provision often choose joint and survivor annuities, which can help offer the peace of mind that a surviving partner will continue receiving payments for life. However, it is important to understand the value of those payments and how they may change when a partner passes away.