As the name implies, hybrid annuities are simply a combination of two or more basic types of annuity contracts. Most products combine a fixed and a variable annuity contract that are housed inside the same chassis.

What is a combination annuity?

An annuity that allows the annuitant to make contributions to both a fixed annuity and a variable annuity at once. For example, if an annuitant contributes $1000 per month to the hybrid annuity, $800 may be allocated to the fixed annuity and $200 to the variable annuity.

How do inherited annuities work?

What Is an Inherited Annuity? When someone purchases an annuity contract, they may have the option to name one or more beneficiaries. Those beneficiaries are then eligible to receive payments from the annuity if the original annuitant passes away.

Who is the beneficiary of a variable annuity when the owner dies?

For most variable annuities, beneficiaries receive at least the original amount the owner contributed. For fixed annuities, the beneficiary receives the present value of payments. For some immediate annuities, such as a lifetime immediate income annuity without term certain, the insurance company keeps the money when the owner dies.

Can you have more than one beneficiary in an annuity?

Some even have more than one beneficiary, since annuities can include a death benefit that allows payouts to continue for a family member. Since there are multiple options for annuity payouts, it’s important to know how they work and how taxes apply.

Do you pay taxes on the principal of an annuity?

Supposing that this annuity was purchased with after-tax dollars, ordinary income is owed on all gains but not on the earned principal. A portion of each annuity payment will be considered a tax-free return of principal, spreading the tax liability out over time, unless you select the lump-sum payout.

Can a younger representative be included in an annuity?

While finalizing terms of the annuity agreement, the owner has the option of including an annuitant. It is common for the annuity owner to name themselves as the annuitant. However, sometimes an annuity owner elects to name a younger representative as the annuitant to stretch out payments and extend the tax liability.