A life annuity with period certain combines lifetime income for the annuitant with a guaranteed minimum payment period. This structure addresses the individual ' s concern that an early death could otherwise cause annuity payments to terminate before the contract has provided substantial value to beneficiaries.
For example, under a life annuity with a 10-year period certain, payments continue for the annuitant ' s lifetime. If the annuitant dies after only three years, the designated beneficiary generally receives the remaining seven years of guaranteed payments. If the annuitant survives beyond the 10-year guaranteed period, payments continue for the annuitant ' s lifetime but cease at death after the guarantee has expired.
A pure life annuity, also called straight life, maximizes lifetime income but provides no continuing payment guarantee to a beneficiary after the annuitant dies. “Deferred annuity” describes when income begins rather than the beneficiary guarantee attached to the payout method. “Immediate annuity” likewise describes when distributions commence, generally within one annuity period after purchase, rather than whether payments continue following an early death.
Therefore, a life annuity with period certain best satisfies both lifetime-income and beneficiary-protection objectives.
Study Guide Reference: Annuities — life income with period certain; straight life; guaranteed periods; beneficiary continuation of payments.
