Period Certain: Definition, How They Work, Types, and Examples

Period certain annuities allow beneficiaries to receive the remaining payments and let individuals to choose when and how long they receive payments. This stands in contrast to more conventional annuity options, such as life, lifetime, or pure life annuities, where annuitants receive payments for the rest of their life, regardless of their retirement’s duration.

By selecting the period-certain annuitization option, the annuitant is usually able to receive a higher monthly payment than with a life option. This extra income comes with a price, though; the risk that the annuity payments will run out before the annuitant’s death (longevity risk). For example, say a 65-year-old annuitant decided to start receiving payments from their annuity and chose a 15-year period-certain payout option. This would provide them with a retirement income until the age of 80.

Should the annuitant die at or before age 80, this option would not present a problem, but should they live longer than 80 years and not have another source of retirement income, this option could prove risky.

A pure life or lifetime annuity pays a benefit to the annuitant until death. The deceased’s estate or beneficiary will receive no benefits after that point. With such an annuity, there is no risk of outliving the retirement income they provide.

By choosing a period certain option in a life, guaranteed, or certain annuity, the annuitant can specify when the benefit will start and how long it will last to tailor it to their retirement and estate planning needs, as well as their lifespan expectations. With a period certain option, the deceased annuitant’s estate or beneficiary may still receive annuity payments until the timeframe specified within the period certain expires. Common periods for a period certain annuity are 10, 15, or 20 years.

A hybrid product combines a period certain annuity with a life annuity and is called “income for life with a guaranteed period certain benefit” (also referred to as “life with period certain”). This strategy provides a guaranteed payout for life that has a period certain phase. If the customer (annuitant) dies during the certain period phase, their beneficiary receives the remainder of payments for that period.

A period certain annuity offers flexibility in terms of payment duration and start date. This allows individuals to customize their annuity to suit their retirement and estate planning needs.

The main risk is longevity risk, where annuity payments may cease if the annuitant lives longer than expected, potentially leaving them without retirement income.

Period certain annuities allow the annuitant to choose both when the annuity payments start and how long they last to tailor it to their retirement and estate planning needs, as well as their lifespan expectations. With a period certain option, the deceased annuitant’s estate or beneficiary may still receive annuity payments until the timeframe specified within the period certain expires.