Key Takeaways
- A life annuity with period certain offers guaranteed payments for a specified number of years or for the rest of the annuitant’s life, whichever comes last.
- While this annuity option can provide income to beneficiaries within the guaranteed period, it generally lacks a death benefit beyond that period unless an additional rider is purchased.
- Monthly payments for a life with period certain annuity are typically lower than those for other annuity payouts.
What Is a Life Annuity With Period Certain?
A life annuity with period certain is one type of annuity payout option. The life with period certain payout is a hybrid option that provides lifetime payments with guaranteed income for a specified number of years.
For example, if you purchase a single life annuity with a 20-year period certain rider and pass away 10 years later, your beneficiary will collect income benefits for another 10 years.
Without the period certain option, income benefits will end upon your death. The insurance company will then apply the remaining value of your contract as mortality credits, which they will use to pay the surviving annuitants of other annuity contracts.
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A period certain option added to a single life or joint and survivor annuity means the insurance company must continue making payments after the death of the annuitant or annuitants. This means income payments will typically be lower than the periodic payments from a lifetime annuity.
“The more you’re fiddling with the guarantee to say, ‘I want more security that I’m going to get my money,’ the lower those monthly payments become,” Stephen Kates, Certified Financial PlannerTM professional, told Annuity.org. “If I say, ‘I want coverage for myself and my wife and I want it to last 30 years,’ the insurance company can say, ‘Okay, we know exactly how much we’re going to have to pay out if you live 40 years from now.’ So your payment will go down because they know how much they’re going to pay out.”
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Pros and Cons of Life Annuities With Period Certain
Life with period certain annuities can provide an additional level of protection and peace of mind for annuity owners, but like any payout option, there are both benefits and drawbacks to this type of annuity.
Pros
- Guaranteed lifetime income
- Beneficiary can receive income payments
Cons
- Payments will be lower than other payout options
- No death benefit after period certain
A key advantage of the life with period certain payout structure is the guarantee that your annuity will payout for the rest of your life. Even if you pass away earlier than expected, the insurance company will not keep all of the remaining funds.
This payout option includes a kind of death benefit, in that annuity payments within the period certain will go to the contract’s beneficiary if the annuitant dies within that same period. However, a potential con of life with period certain is that if you die after the period certain elapses, your beneficiaries receive no death benefit unless you add on a rider at an extra cost.
Another disadvantage of a life with period certain annuity is that the monthly payments will generally be lower than that of annuities with only a period certain payout or only a lifetime payout. The insurer lowers payouts for these types of annuities to offset the additional guarantees they offer to life with period certain customers.
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