Retirement may still be many years away, or you may finally be getting ready to start that part of your journey in the very near future. No matter where you are in life, you have likely given at least some thought to the types of financial vehicles that you would like to utilize once retirement comes.
If you have considered an MYGA, or multi-year guaranteed annuity, as one of your options, you may be concerned about what will happen to the account upon your death. This article will help you understand what you need to know about how a death benefit works in an MYGA.
What Is an MYGA?
A multi-year guaranteed annuity, or MYGA, is a way of gathering income that is popular with people who are close to the age of retirement. An MYGA guarantees you a fixed interest rate on a sum of your money for a predetermined number of years.
You deposit your lump sum of money into the MYGA and agree on a time span of repayment. Then you leave the account alone for the determined number of years to which you have agreed and wait as it gathers interest. At the end of the set period, you begin to receive your money back with the interest it has collected. The only catch is that typically, you cannot withdraw money during the time during which the MYGA is growing, without paying a fee.
You should also know that most MYGAs will not return all of your money to you at once. Because they are a type of annuity, you can expect regular, predictable payments. Most people use these payments to replace some or all of their income once they retire, treating the payments as a paycheck.
MYGAs are simple arrangements without annual fees or attachments to the stock market. They are static and often easy to manage, providing predictable results that are guaranteed.
Generally, MYGAs can last anywhere from three to ten years, and the interest rates tend to be higher for longer periods of time. After the time period has ended, you can collect your money or transfer it to a new MYGA to keep it growing.
Death Benefits and How They Work
If you die in the middle of your MYGA term, there are several options that may be applicable. Most often, your beneficiary will receive your policy value at that point in time. Your loved ones will be paid the amount of money you put into the MYGA plus the interest it earned over the period of time for which you held it.
The agreement ends with your death, and that concludes the MYGA agreement. If your family wants to continue investing that money into a multi-year guaranteed annuity but are not on the policy themselves, they will need to start one of their own.
Other Potential Outcomes
Sometimes, instead of cashing out the value of the MYGA, the company that is managing your MYGA attaches a surrender value. This means your death is considered as withdrawing the money too early, and your estate will be forced to pay the fee for ending the agreement before it was meant to end. This usually occurs when the MYGA has a high interest rate.
The third option that may happen is that your spouse or partner can carry on the policy. If you have assigned them as the MYGA’s primary beneficiary, the agreement does not have to be over and the money dispensed.
Instead, the policy can be transferred into your spouse or partner’s name and continue through the duration of the agreed-upon time period, all while continuing to accrue interest. Your loved one will then still be able to receive the payouts at the end of the policy’s term.
At the end of the MYGA duration, they will have the same options as before: they can start to receive payments from the MYGA, or they can open a new MYGA. It is important to note that this ability to carry on the policy only works if your spouse or partner is the primary beneficiary. If they are not, then this option is not available.
Trust the Experts to Help You Plan for Your Family’s Future
Retirement planning includes many important details, and the death benefits associated with your accounts should be included among those considerations. You don’t have to worry about losing your MYGA income if you die. If you take the correct steps, your loved ones can still benefit from your policy even after you are gone.
At Pillar Life Insurance we have designed our products to let you be in charge. You can obtain more information in our FAQs section. When you are ready to buy, our customer portal will walk you through a step by step questionnaire which you can complete on your schedule.