Definition of Period Certain

Period certain is a term in annuities and pension plans that guarantees payments for a specific number of years, regardless of whether the annuitant is alive. If the annuitant passes away before the end of the period, payments continue to a beneficiary.

For example, if an annuity has a 10-year period certain and the annuitant passes away in year 5, the remaining 5 years of payments go to a designated beneficiary.

Purpose of Period Certain in Financial Planning

Period certain is used for:

• Ensuring income security for a fixed number of years.
• Providing financial support for beneficiaries.
• Reducing the risk of losing all benefits if the annuitant dies early.
• Offering structured payouts in retirement planning.
• Balancing annuity benefits with long-term financial goals.

How Period Certain Works

Setting the Fixed Period

• The annuitant selects a period certain, typically 5, 10, 15, or 20 years.
• The annuity guarantees payments for this duration, even if the annuitant passes away.
• Example: A retiree chooses a 15-year period certain annuity to secure income until age 80.

Payments to Beneficiaries

• Payments continue to the designated beneficiary if the annuitant dies within the guaranteed period.
• Example: A policyholder with a 10-year period certain annuity passes away in year 6, and the remaining 4 years of payments go to their spouse.

Expiration of Payments

• After the period certain ends, payments stop unless the annuity includes a lifetime income option.
• Example: A retiree receives payments for 20 years but has no further income after the guaranteed period ends.

Types of Period Certain Annuities

Fixed Annuity with Period Certain

• Guarantees stable payments over the selected period.
• Example: A retiree purchases a 10-year fixed annuity to cover early retirement expenses.

Life Annuity with Period Certain

• Provides lifetime income but guarantees payments for at least the period certain.
• Example: A pensioner selects a lifetime annuity with a 15-year period certain to ensure payments for their spouse if they pass away early.

Joint and Survivor Annuity with Period Certain

• Ensures payments continue to a surviving spouse for the duration of the period.
• Example: A couple selects a joint annuity with a 20-year period certain to secure long-term financial stability.

Period Certain vs. Life-Only Annuities

Feature	Period Certain	Life-Only Annuity
Definition	Payments are guaranteed for a fixed-term	Payments continue for life but stop at death
Beneficiary Payments	Payments continue if the annuitant dies early	No payments after the annuitant’s death
Example	A 10-year annuity pays beneficiaries if the annuitant dies in year 5	A life annuity stops payments when the annuitant passes away

Example: A retiree with a 15-year period certain annuity guarantees payments for their spouse, while a life-only annuity ends immediately upon death.

Advantages and Disadvantages of Period Certain

Advantages

• Provides guaranteed income for a fixed period.
• Ensures beneficiaries receive payments if the annuitant dies early.
• Offers flexibility in retirement planning.

Disadvantages

• Payments end after the period, leaving potential income gaps.
• Can have lower monthly payouts than life-only annuities.
• Inflation may reduce the purchasing power of fixed payments.

Related Terms

• Annuity – A financial product that provides regular income over time.
• Beneficiary – The person designated to receive payments if the annuitant dies.
• Pension – A retirement plan that provides structured payouts.

Interesting Fact

Period certain annuities are often chosen by retirees who want to secure payments for a surviving spouse or dependent, ensuring financial stability in the event of early death.

Statistic

According to the Insurance Retirement Institute, over sixty percent of retirees who purchase annuities choose a period-certain option, which guarantees income for a set number of years and protects beneficiaries from financial loss.

Frequently Asked Questions (FAQ)

1. What happens when the period certain ends?

Once the period ends, payments stop unless the annuity includes a lifetime income option.

2. Can I change the period certain after purchasing an annuity?

No, the selected period certain is fixed once the annuity contract is finalized.

3. How does a period certain affect annuity payout amounts?

Shorter periods certain result in higher monthly payments, while longer periods reduce monthly payouts.

4. Who benefits from a period of certain annuity?

Individuals who want to provide guaranteed income for a fixed number of years, especially for a spouse or heirs.

5. Can a period certain annuity be combined with other income sources?

Yes, retirees often use period certain annuities alongside pensions, Social Security, or investments to create a balanced retirement plan.