A client remarried: Does their annuity still fit?

Image shows a man dipping a woman during a dance — Remarriage is a good time to review the annuity’s beneficiary designation. (AI-generated image)

By Anna Baluch

When a client remarries, their financial picture inevitably changes. A new spouse, children from a previous marriage, and updated estate goals can all affect how they want their annuity to work.

That’s why remarriage is a good time to review the annuity’s beneficiary designation.

“It's the simplest thing on the contract and the one with the greatest consequences if it's wrong,” said Devin Shave, annuity market specialist and financial advisor at Annuity Radar.

Confirm who is named as primary and contingent beneficiary, and ask whether that still reflects what the client wants. If a former spouse is still listed, don't assume the divorce agreement or court proceedings automatically took care of it.

“Some states have laws that revoke an ex-spouse designation after divorce, but carriers generally pay whoever is on the form, and sorting it out after a death can mean delays or even litigation,” Shave explained.

Additionally, confirm whether the contract is qualified, like an IRA annuity, or nonqualified. The options for a surviving spouse are different for each.

Don’t rush to replace an existing annuity

Remarriage alone usually isn't a reason to replace an annuity. The real question is whether the goal for the money has changed.

Maybe the contract was originally purchased for accumulation and the couple now wants lifetime income.

“Even then, most income riders allow the client to choose a single or joint payout when income begins, so the existing contract may already do the job,” Shave said.

Before any replacement, surrender or exchange, spell out what the client would give up.

This could include surrender charges, a market value adjustment, a guaranteed rate, an income or withdrawal benefit base that has grown over the years, lifetime withdrawal guarantees, enhanced death benefits, vested bonuses or older contract terms that may no longer be available.

“A new contract usually starts a new surrender schedule, too. If the goal has changed, compare the old and new contracts side by side,” Shave explained.

Additionally, confirm whether the contract is qualified, such as an IRA annuity, or nonqualified. The tax rules and options available to a surviving spouse can differ depending on the type of contract.

Don't assume every replacement is tax-free. Marriage should trigger a review, not a replacement,” Shave added.

Align the annuity with the couple’s financial plan

A remarriage typically leads to changes in a client’s financial plan. To determine if the annuity still makes sense, start with fact-finding.

“Annuities generally do one of four jobs, and the advisor needs to know which one the couple is solving for,” Shave said.

The first job is accumulation. Marriage may not change much, but revisit household liquidity, time horizon, carrier strength and the contract's guarantees.

Next is income, which can change significantly. A couple may want income that lasts as long as either spouse is alive rather than the highest single-life payout.

Then, there’s legacy.

“Decide how much goes to the surviving spouse versus children or others. Blended families need the most attention here,” Shave explained.

Long-term care is the last component to consider. Some annuity and long-term care hybrid products can cover both spouses on one contract, which wasn't an option when the client was single.

Whatever you do, don’t review the annuity in isolation. Look at the client’s Social Security, pensions, retirement accounts, nonqualified assets, liquidity, insurance and the estate plan.

Remember that the annuity's beneficiary form, not the will, controls who receives the annuity’s proceeds after the owner’s death, so the two need to agree.

The question isn't “What should we do with the annuity now that you're married?” It's “What does this money need to do now?” Once that's clear, the right ownership, beneficiary, income and product structure usually follows.