Annuities are insurance policies which guarantee you an income for life or for a set period of time. However, you are not required to use the money during your lifetime. Instead, you may leave the money to a beneficiary. If you do, then the money may be stretched over their lifetime. As long as the annuity is not in a retirement plan, you should have no problems doing this.
Start by listing a beneficiary; this may be a spouse or a child or another loved one. You must name this person specifically as the beneficiary. It can be easy to overlook this critical step and leave the money to the estate. Doing this, however, won't allow the money to be stretched out over your heir's lifetime.
Your heir must elect to receive payments for a lifetime or a set number of years. Lifetime payments begin when you die and continue for the beneficiary's life. When the beneficiary dies, the payments stop. Alternatively, your beneficiary may elect a period certain annuity payment. This option gives your beneficiary the option to receive payments for a set number of years. If she dies within the payment period, then payments continue until the payment period ends. Then a beneficiary of your beneficiary will continue receiving the payments.
A stretch annuity payment option allows your beneficiary to receive payments from your savings while still earning interest. The money that hasn't been paid out earns interest based on the insurance company's general account. When your beneficiary receives the payment amount from the insurer, she may set some of this money aside if she wants to create additional savings from the payments. Otherwise, this money may be spent on whatever your beneficiary deems necessary.
A non-qualified stretch annuity is available on every deferred annuity contract. Some contracts allow you to have a "step-up basis at death." This means that the insurer will look back over the years you've held your contract and pay out the highest account balance the annuity has had as the death benefit in lieu of the current annuity account balance. This is an option you must request from the insurance company before you sign the annuity policy contract and might only be available on variable annuity policies. This "step-up basis" gives your beneficiary additional money to stretch out over their lifetime. Because of the nature of this feature, you may have to pay an additional cost out of your current annuity policy account during your lifetime.