ANNUITY (PERIOD) CERTAIN
An Annuity Certain is a designation that specifies the number and amount of benefits paid. This option guarantees that an insurance company will only pay a certain amount on an annuity. An annuity includes a Death Benefit, which allows payment to the beneficiary to be made upon the death of the annuitant. This benefit will continue for as long as the beneficiary is alive. This annuity states that it will pay any benefits left after the period certain to the beneficiary. If the annuitant is unable to live the specified period, the annuity will be considered a Life Annuity.
Cecil passes away three years after he took out an Annuity for a five-year period. For the next 2 years, the Annuity Company will continue making payments to Cecil’s beneficiary. The present value of any remaining payments is usually paid in one lump sum by insurance companies, so Cecil’s beneficiary would receive two annual payments.
Cecil would have survived the five-year annuitization period (liquidation period) and the annuity would still have been paid in the usual manner. It would cease upon the death of the annuitant.
An annuity called a Life Annuity Certain… guarantees a certain number of income payments, regardless of whether the annuitant is still alive to receive them. The income will continue for as long as the annuitant lives after the guaranteed number has been paid. The balance of the annuitant’s guaranteed income is paid to the beneficiary if the annuitant passes away within the guarantee period. A common contract for example provides income payments for income for a life annuity that is guaranteed for at least 10 years. The beneficiary would receive the eight additional years of income if the annuitant died after receiving two years’ worth of payments. An annuitant who survives the 10 year period would receive income payments for their lifetime, but no benefits would be available to a beneficiary.
LIFE ANNUITIES (STRAIGHTLIFE ANNUITIES).
This is the most popular type of annuity. The “Straight Life Annuity” is a simple annuity that guarantees periodic payments and terminates upon the death the annuitant. The contract ends when the annuitant is dead. No payments are made. The annuitant does not receive the same amount of payments as the premiums paid. The annuitant will be able to recover more if they live a long life. However, if they die before the end of their annuitization period, the insurance company will only pay out the benefits until they are deceased.
If the annuitant is not alive during the accumulation period, (i.e. The annuity payments will cease during the accumulation period. This will limit the potential payouts and provide a greater return than other plans.
Straight Life Annuity offers the highest income per dollar of outlay.
LIFE INCOME WITH A PERIOD CERTAIN
The Life Income with Period Certain guarantee that annuity payments to beneficiaries will continue for a specified number of years even if the beneficiary dies before this period ends. The annuitant’s payments will continue for as long as they live.
LIFE INCOME WITH A REFUND ANNUITY
The Life Income with Refund Annuity type states that the company will pay at least the premiums paid to cover the death of annuitants. The guaranteed monthly income will be paid by the company for as long as annuitants live.
This annuity comes in two forms:
Cash Refund: If annuitant passes away, the Company will pay in cash the difference in income received and premiums paid plus interest.
Installment Refund: The Company agrees that it will continue to pay the beneficiary until the sum of all payments made to the annuitant, the beneficiary and the owner equals the amount paid for the annuity plus any interest earned. The periodic payments will be smaller if the payout is not stopped immediately after the death of the annuitant.
Annuities that offer refund options pay annuitants less than comparable contracts that do not have them. The company incurs an additional cost and the contract owner receives an additional benefit.