A life annuity with period certain is a type of life annuity that allows you to choose when and how long to receive payments. This differs from a pure life annuity where you receive payments for life regardless of how long you live.
If you die before the period is fulfilled, the payments will continue to your beneficiary for the remaining time. Life annuities can be thought of as longevity insurance, and in many ways, they’re the opposite of a life insurance policy.
While life insurance protects your family if you die early, a pure life annuity protects you and your family if you live too long. However, with a period certain annuity, it’s still possible that you would outlive the annuity, so it doesn’t offer the ironclad guarantee of a pure life annuity.
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How Does a Life Annuity with Period Certain Work?
A life annuity with period certain is paid for in installments over a set period or in a single lump sum payment, just like other annuities. When purchasing a period certain annuity, there are four things you need to decide:
- How much you want to invest.
- The size of the payments you want to receive.
- The length of time you want to receive them. This is typically in increments of 5 years, with common choices ranging from 5 to 20 years.
- When you want the payments to begin.
Note that these choices interact with each other. If you increase one, it will decrease one of the others and vice versa. If you choose a higher monthly payment, then the initial cost will be higher, the period will be shorter, or the starting date will need to be delayed.
There is also a hybrid option, often called an “income for life annuity with guaranteed period certain benefit.” This type of annuity provides guaranteed payments for your lifetime, but it also comes with a period certain phase. If you die during the period certain phase, your beneficiary will receive the payments remaining in the period.
Why Choose the Period Certain Option?
One of the best reasons for buying a period certain option is that it increases the payments you receive. Since the insurance company knows exactly how long they’ll be paying, they don’t have to cover the possibility that you might live longer than expected. The flip side is that you assume the risk that you might outlive the annuity.
A common strategy, then, is to choose a starting date and period that will most likely provide you with a lifetime income. A 65-year-old man might choose a 20-year period, betting that he won’t live past 85. If he's 75, a 10-year period might be sufficient. He could make this a more certain bet by having the payments start five years later. The result is that he gets higher payments than he would with a pure life annuity.
What Does the Period Certain Option Cost?
Calculating the cost of an annuity with the period certain option is more straightforward than a pure life annuity. Just as with conventional annuities, many online calculators can be found, but exercise caution with these calculators.
They offer only average or “typical” costs or only prices from the company providing the calculator. Calculating the cost of a life annuity with period certain may be simpler than a pure life annuity, but there are still large cost variations between companies and offerings.
The best way to find out what a life annuity with period certain will cost is to contact an independent insurance agent who can assess your individual circumstances, find the best annuities for you, and provide exact costs and options to choose from.
Where Is the Best Place to Buy a Pure Life Annuity?
There is a vast network of independent insurance agents who can provide you with a large selection of annuity products, including life annuities with period certain. This is a benefit you won’t get from a single insurance company or investment firm.
Why Choose an Independent Insurance Agent?
Independent insurance agents simplify the process of shopping for and comparing annuities. They will explain the complex terms for you, cut through the jargon, and make sure you understand the fine print.
But perhaps most importantly, they work for you – not one insurance company. They can compare annuity products from many companies and pick the ones that are best for you at the best possible price.
They’ll also be there for you in the future if your needs change or questions arise. They work for you, and their only job is keeping you satisfied now and in the future.
Looking for More Information?
If you’re considering an annuity, you can find a large library of additional information available here to help guide your decisions.