Life annuity with period certain
Also known as: life with period certain, life income with period certain
A life annuity with period certain pays income for the annuitant's entire life, but guarantees payments for a minimum period — such as 10 or 20 years. If the annuitant dies within that period, a beneficiary receives the remaining guaranteed payments.
A life annuity with period certain is an annuity payout option that combines lifetime income with a minimum payment guarantee. The insurer pays the annuitant for as long as they live — but if death comes before a chosen period certain (commonly 10, 15, or 20 years) has elapsed, payments continue to a named beneficiary until the period ends.
Consider a life annuity with a 10-year period certain. If the annuitant lives 30 years, they collect payments for all 30 — the period certain simply never comes into play. If the annuitant dies after 3 years, the beneficiary collects the remaining 7 years of guaranteed payments. Either way, the insurer pays for at least 10 years, and possibly for life.
The guarantee has a price. Because the insurer takes on the risk of paying a beneficiary, each payment is smaller than under a straight life annuity, which pays the maximum income per dollar of premium but stops entirely at death — even if the annuitant dies one month into the payout phase. Life with period certain appeals to people who want lifetime income but can't accept the possibility of forfeiting nearly everything to the insurer through an early death.
State life insurance exams test the annuity settlement options as a family: straight life pays the most but has no beneficiary protection, life with period certain trades some income for a minimum guarantee, and joint and survivor options cover two lives. Achievable's life and health insurance courses walk through each payout option and how they rank by payment size.
Key takeaways
- A life annuity with period certain pays for life, with payments guaranteed for a minimum period such as 10 or 20 years.
- If the annuitant dies during the period certain, the beneficiary receives the remaining guaranteed payments.
- Payments are smaller than a straight life annuity's because of the added guarantee.
- If the annuitant outlives the period certain, payments simply continue for life and nothing passes to a beneficiary.