With an annuity, you name one or more beneficiaries. A death benefit is the amount beneficiaries will receive when you die. The most basic death benefit is the "return of account value," where your beneficiaries receive the current contract value. Another common death benefit is a "return of premium," (typically for an additional fee) where your death benefit is equal to everything you've paid for the annuity, minus withdrawals and any applicable premium taxes. Another type of optional death benefit is the stepped-up death benefit (typically for an additional fee), and many stepped up death benefits pay the higher of the contract value at death or the highest contract anniversary value since the purchase of the annuity. Withdrawals will reduce the optional death benefits on a pro-rata basis. For all of these death benefits, the proceeds may bypass probate.
Let's say that a big market downturn has significantly reduced the value of your annuity at the time of your passing. Because you purchased a return of premium death benefit, market losses will not decrease the amount your beneficiaries receive.