What Is a Cash Refund Annuity?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 December 2019
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A cash refund annuity is a type of annuity contract that allows an annuitant to designate a beneficiary who can receive payments from the plan in the event that the annuitant passes away. Typically, the balance remaining in the annuity plan is paid to the beneficiary in a lump sum, although some plans will allow for paying out the balance in a series of payments instead. This approach can be helpful in providing for a loved one in the event that the annuitant should die suddenly.

The structuring of a cash refund annuity calls for the designation of a beneficiary that will receive the balance of the annuity should the annuitant pass away before the balance is exhausted. For example, if an individual took out an annuity as part of a strategy for creating an income stream once he or she retires, disbursements from the annuity will begin when the annuitant reaches retirement age. Should the annuitant pass away a few years after retirement and leave a balance in the cash refund annuity, the insurance company managing the plan will forward any remaining balance to a loved one that was designated as a beneficiary.


Some cash refund annuity plans will allow more than one beneficiary for this type of arrangement, effectively establishing a priority list of beneficiaries that may be employed if some of those beneficiaries are also deceased. This means that if the annuitant designated a spouse or partner as the beneficiary of choice but that individual has also died, the insurance company can move on to the next beneficiary on the list. Some annuity plans are structured to allocate equal portions of the remaining annuity balance to all beneficiaries that are still living, allowing the annuitant to provide some final support for more than a single loved one.

The benefit of utilizing a cash refund annuity is that there is no question of what will be done with any remaining balance in the plan should the annuitant pass away suddenly. There is no need for the asset to go through a probate process, which can be an advantage if the beneficiary is a spouse or partner who is responsible for settling the end of life expenses of the recently deceased annuitant. As with any annuity plan, the goal is to compare offers from different providers and settle on the plan that will ultimately offer the best interest rates and terms, as well as allow for disbursement of funds from the annuity in a manner that is in keeping with the wishes of the annuitant.


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