This article is a section taken from MA for People Who Are Age 65 or Older or People Who Are Blind or Have a Disability (MA-ABD), a part of the revisions and additions to the Minnesota Health Care Program Eligibility Policy Manual.


An annuity is a purchase contract where the purchasing party generally pays a lump sum of money or periodic payments to an entity issuing the annuity (a bank or insurance company) in return for an expectation of future regular payments in certain amounts. These payments may continue for a fixed period of time or for as long as the person or another designated beneficiary lives, creating an ongoing income stream. The annuity may or may not include a remainder clause under which, if the annuitant dies, the contracting entity converts whatever is remaining in the annuity into a lump sum or periodic payments that are paid to a designated beneficiary. Once the annuity has been converted to an income stream, it is no longer an asset.

Classification of Annuities

Annuities can be classified in a number of ways, including:

  • The time at which annuity payments begin
    • Immediate annuity
    • Deferred annuity
  • The nature of the periodic payments
    • Fixed annuity
    • Variable annuity
  • The period over which annuity payments will be made
    • Term certain annuity
    • Life annuity
  • The type of annuity issuer
    • Commercial annuity
    • Private annuity

Free Look Period

The purchaser of an annuity typically has the right to cancel an annuity contract within ten days following the date of receiving a copy of the annuity contract. Some annuity contracts allow a free look period longer than ten days.

This cancellation period is often referred to as the “free look period.” The free look period should be indicated in the annuity contract. The purchaser cannot waive the right to cancel an annuity contract. The purchaser of the annuity always has this right, even if he or she agrees to give up this right or the right is not stated on the annuity documents.

The purchaser is entitled to a refund of the annuity’s entire purchase value when the annuity is canceled within a free look period.

  • The refund the annuity purchaser is entitled to receive when a variable annuity is canceled within a free look period is based upon several factors. As a result, the refund could be more or less than the annuity’s purchase value.

Cash Value

The cash value, also known as the cash surrender value (CSV), of an annuity is the amount the person can withdraw from the annuity.

It is most common for an annuity to have cash value during the accumulation phase. Typically, at annuitization, there is no longer a cash value to count because the funds are no longer available as a lump sum.

If a person withdraws from the annuity, it is considered a conversion of assets and the policy for the asset in which the cash value was converted is followed.

The cash value of an annuity is:

  • The total of all deposits made to the annuity plus any earnings on the deposits not previously paid out
  • Minus any earlier withdrawals and any surrender costs charged for the withdrawal
    • There may be tax penalties for early withdrawal. Income tax withheld or tax penalties for early withdraw are not allowable deductions from cash value.

Commuted Cash Value

A commuted cash value allows the owner to cash in the contract even after annuitization. This allows the owner to cash in the policy for the present value of all future payments. Commuted cash value can be a provision in the contract.

Required Minimum Distributions

Required minimum distributions from an annuity during the accumulation phase are considered a conversion of assets, not income. The required minimum distributions are age specific. At a certain age, usually, 59½ or 70½, the owner of the annuity has to make a withdrawal of cash.

Counting Annuities as Assets

Annuities where the person is the annuity owner is counted toward the asset limit as follows:

  • Accumulation phase
    • The cash value of the annuity, if the person is able to withdraw it from the annuity
    • The value of an annuity in a free look period
  • Annuitization phase
    • Any available cash value of the annuity
    • The value of an annuity in a free look period
    • The commuted cash value

Annuity Verification

The person must provide verification of the annuity’s market value if the annuity is countable.

Legal Citations

Minnesota Statutes, section 256B.056, subdivision 1a
United States Code, title 42, section 1396p(e)

CREDIT: The content of this post has been copied or adopted from the Minnesota Healthcare Programs Eligibility Policy Manual, originally published by the Minnesota Department of Human Services.

This is also part of a series of posts on Minnesota Healthcare Eligibility Policies.