Period Certain: How Does This Annuity Work?

Shawn Plummer

CEO, The Annuity Expert

Many people are unaware of what a period certain annuity is. However, it’s essential to know about this type of annuity because many people use them, which can be a valuable tool for retirement planning. This guide will explain how a period certain annuity works and some advantages and disadvantages that come with it.

What Is Annuity Certain?

An annuity certain is a type of annuity that provides a guaranteed income stream for a specific number of years, regardless of whether the annuity holder is still alive. This type of annuity is often used to provide income for a period, such as 10 or 20 years.

An annuity certain can be a valuable financial tool for individuals who want to ensure that they have a guaranteed source of income for a specific period of time. For example, an individual may purchase an annuity certain to provide income for their spouse in the event of their death or to cover expenses such as mortgage payments or medical bills.

There are two main types of annuity certain: a term certain annuity and a life annuity certain.

  1. A term certain annuity is an annuity that provides a guaranteed stream of income for a specific number of years, regardless of whether the annuity holder is still alive. Once the term of the annuity certain is up, the income stream will stop.
  2. A life annuity certain is an annuity that provides a guaranteed stream of income for the remainder of the annuity holder’s life, regardless of how long they live. This type of annuity is often used to provide ongoing income for an individual with a shorter life expectancy.

What is a Period Certain Annuity

A period-certain annuity is a contract that guarantees payments for a specific number of years, typically 5 to 20 years. If the annuitant dies before the policy is over, the payments can be passed to a beneficiary.

Types of Period Certain Annuities

  • Single Life Annuity With Period Certain: A life annuity with period certain provides lifetime payments for one person with guaranteed income for a specified number of years.
  • Joint Life Annuity With Period Certain: Payments for your lifetime and the lifetime of another person (2 persons) with a minimum guaranteed payment period.

Annuities That Offer Period Certain Payouts

Pros and Cons of Period Certain Annuities

Pros

  • You can set the payment schedule. You will know how many payments you and your beneficiary will receive and how much they will be worth.
  • The payments will be larger than payments from a straight-life annuity.

Cons

  • If you live beyond a period certain, the annuity payments stop.
  • Period certain payments can be less than the original investment.
  • The payout earns little to no interest.
  • Owners give up control over their money to the insurance company.

Period Certain Annuity Alternative

Essentially a period certain annuity pays the annuity owner back their own money over a fixed period of time, with a little bit of interest, around one percent. So instead of giving up control over your savings to the insurance company, do this instead:

  • Purchase a deferred annuity that allows an immediate, penalty-free withdrawal based on the original investment amount (not the account value).
    • For 10-year period certain annuities withdraw 10% each year for ten years. So at the end of the tenth year, you’ll have more interest to withdraw in a lump sum than any period certain could provide.
    • For a 20-year period certain annuities withdraw 5% each year for twenty years. At the end of the tenth year, you’ll have more interest to collect in a lump sum than any period certain could provide.

Next Steps

A period-certain annuity can be an excellent option for those looking for stability and predictability in their payments. However, it’s important to understand all of the details involved before making a decision. Contact us today if you’re interested in learning more about this type of annuity or want a quote. We would be happy to help!

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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