Annuity period
Also known as: annuitization period, payout period, liquidation period
The annuity period is the phase of an annuity contract when the insurer makes income payments to the annuitant. It follows the accumulation period, when the owner was paying money in and the funds were growing.
An annuity contract has two distinct phases, and the annuity period is the second one — the stretch of time when money flows out of the contract as income payments to the annuitant. It is also called the annuitization period, payout period, or liquidation period, and depending on the payout option chosen it can last for a set number of years or for the rest of the annuitant's life.
The annuity period is preceded by the accumulation period, during which the owner pays premiums and the contract value grows tax-deferred. Annuitization is the dividing line: the owner converts the accumulated value into a stream of payments, and that election is generally irrevocable. Once payments begin, the contract can no longer be surrendered for a lump sum.
The size of each payment depends on the amount accumulated, the annuitant's age and life expectancy, and the payout option selected. A straight life annuity pays the most per month because payments stop entirely at death, while options that add guarantees — life with period certain, joint and survivor — reduce the payment in exchange for protecting beneficiaries. In a variable annuity, accumulation units are exchanged for a fixed number of annuity units at annuitization, and the dollar value of payments fluctuates with the separate account's performance.
State life and health insurance licensing exams routinely test the two-phase structure of annuities — which phase money goes in, which phase money comes out, and how the payout options compare. Achievable's insurance course covers annuity basics and accumulation in detail.
Key takeaways
- The annuity period is the payout phase, when the insurer makes income payments to the annuitant.
- It follows the accumulation period, when premiums are paid in and the contract grows tax-deferred.
- Annuitization converts the contract value into an income stream and is generally irrevocable.
- Payment amounts depend on the accumulated value, the annuitant's life expectancy, and the payout option chosen.