When you have an annuity, such as a pension from an employer or an annuity you purchased, you may have the option of designating a contingent annuitant. Basically, a contingent annuitant -- also known as a secondary annuitant -- continues to receive annuity payments after the primary beneficiary, or the annuity owner, passes away.

Annuities 101

The basic point of an annuity is to provide worry-free income for its beneficiary, generally for the rest of his or her life, and is typically sold by insurance companies. For example, a retiree may give an insurance company $500,000 at age 65 in exchange for $30,000 in guaranteed annual income for the rest of the retiree's life.

Envelope full of money on a table.

An annuity can give you and a contingent annuitant guaranteed income for life. Image source: Getty Images.

When you buy an annuity, or when you start receiving pension payments, you have two main options. You can choose an annuity that makes its payments until the owner's death and then ceases to make payments afterwards, which generally results in the highest monthly payments.

Alternatively, you can choose a joint-and-survivor annuity, which is designed to provide stable income for two people, such as a married couple. With a joint-and-survivor annuity, the annuity payments continue to be made to a second designated individual upon the death of the primary beneficiary. Because they have a longer potential benefit period, joint-and-survivor annuities tend to pay out lower monthly benefits when compared with sole-beneficiary annuities sold for the same principal cost.

Definition of contingent annuitant

With a joint-and-survivor annuity, the second designated beneficiary is known as the contingent annuitant. If this individual is still alive at the time of the primary beneficiary's death, he or she will continue to receive the annuity's payments for the remainder of his or her life. Once the annuity starts making payments, the contingent annuitant cannot be changed.

Essentially, having a contingent annuitant means that the annuity will continue to pay until two people pass away as opposed to just one.

Many different varieties of annuities

Of course, within each of these two main categories, there are many different possible structures of benefits. For example, some annuities with a sole beneficiary guarantee to return at least the original principal. If the owner dies before the original principal amount has been paid out, the difference will go to the owner's heirs.

Some joint-and-survivor annuities may continue to pay the exact same monthly benefit to the contingent annuitant, while others may pay a reduced benefit after the primary beneficiary's death -- half of the benefit is a common amount.

There also are immediate annuities, which begin paying benefits right away, as well as deferred-income annuities, which the owner pays for with the promise that benefits will start at some later date.

Additionally, some annuities pay a fixed monthly amount, while others are periodically adjusted for inflation. Some pay a benefit for the rest of the owner's -- or contingent annuitant's -- life, while others pay for a set number of years, such as 20 or 30. The point is that there are literally hundreds, if not thousands, of possible annuity structures to choose from.

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