Benefits Of A Period Certain Payout
The inability to accurately estimate their return deters many people from buying annuities. This uncertainty is due to the fact that none of us knows how long we will live.
But with a period certain annuity, you know how long your payments will last. You set your payment schedule. Youll know exactly how many payments you and your beneficiary will receive and the amount of the payments.
In addition, in instances where the period certain is less than the life expectancy of the measuring life, the payments will be larger than payments from a straight-life annuity.
What Happens If Your Insurance Company Cant Pay Your Annuity
Assuris is an organization that protects the public against insurance company bankruptcies. If your insurance company can no longer pay your annuity, Assuris will pay you either the full amount or a portion of it.
- If your annuity payment is $2,000 per month or less : Your payments are fully covered.
- If your annuity payment is more than $2,000 per month: Assuris covers up to 85% of your payment amount, with a minimum of $2,000 per month.
To be covered by Assuris, your insurance company must be a member. This is likely the case, since all insurers who sell annuities are required to meet this obligation. To find out more about Assuris or to confirm that an insurer is a member, visit the Assuris
Period Certain Annuity Defined
A period certain annuity is a contract that lets you choose when and how long youll receive payments. The income you receive from the annuity is guaranteed for the time period that you specify. This income would be paid to you, but can pass to a named beneficiary when you die. Say you had a lifetime annuity with a 10-year period certain. The insurance company promises to pay out for the rest of your life but no less than 10 years. In other words, if you died five years after buying the contract, the insurance company would continue to make payments for another five years to your named beneficiary.
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What Is A 10 Year Certain And Life Annuity
A 10 Year Certain And Life Annuity is a type of annuity that will provide payments to you for the rest of an annuitants lifetime with a minimum of 10 years, even if you die. If you pass away during the guaranteed period, the rest of the payments will go to your beneficiary.
If the annuitant outlives the 10 years of guaranteed payments, then they would continue to receive income payments for life however, no payments would be available for the beneficiary.
Understanding The Annuity Certain
The set expiration date differentiates the annuity certain from a life annuity. The latter provides payouts for the remainder of the annuitant’s life and, in some cases, the life of the investor’s spouse. A lower payment will be offered for a life annuity because of the uncertainty of the term. Synonyms for annuity certain include years certain annuity, period certain annuity, fixed period annuity, and guaranteed term or guaranteed period annuity.
The investor in an annuity certain could easily outlive the payment period. Beware of relying on one for retirement income.
In the case of the annuity certain, the buyer chooses how long a period the annuity will payout. The payments will continue to be made until it expires, either to the buyer or the buyer’s beneficiary.
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What Happens At The End Of An Annuity
Some annuities provide for payments to be given to a spouse or other annuity beneficiary for years after the annuitants death, while others provide for payments to be made to a spouse or other annuity beneficiary for years after the annuitants death. At the time the contract is written, the purchaser of the annuity makes the selection on these possibilities.
Life With Term Certain Payments
This option pays income for your lifetime or for a set period, whichever is last. For example, you might opt for life with a 10-year term. If you live for 20 years after you start payments, you receive income for that entire time.
If you were to die two years after receiving payments, your beneficiary would receive payments for eight years to complete your 10-year term.
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Related To 10 Year Certain Single Life Annuity
Single Life AnnuityLife AnnuityQualified Preretirement Survivor AnnuityQualified Joint and Survivor AnnuityAnnuityLump SumAnnuity Starting DateActuarial EquivalentPre-Retirement Survivor AnnuitySurvivor BenefitActuarially EquivalentJoint and Survivor AnnuityRequired Beginning DateStructured settlement annuity2001 CSO Mortality TableNet death benefitPre-Retirement Survivor Benefit100-year floodActuarial methodPublic benefitYears to Target Retirement DateDeath BenefitStarting DateSurviving SpouseGroup Annuity ContractEarly Retirement BenefitPlans & Pricing
Who Could Use A Single Life Annuity
Single life annuities can be good choices for unmarried people because they offer the highest payouts. And they make the most sense for single people at or near retirement age.
Very young people, in their 20s and 30s, may be better off investing in the stock market rather than buying an annuity. Since they have decades to go before retirement, the passage of time can help smooth out the effects of market cycle ups and downs on their portfolios.
People ages 55 to 75 may benefit most from the guaranteed income of an annuity. It is insulated from the market booms and busts. Older people, in their late 70s and 80s, may not have enough years of life remaining for annuities to make sense. Thats because annuities have a relatively high cost compared to other retirement financing tools.
For a couple with a pension or other savings that could provide retirement income, a single life annuity could give them a higher payout while both spouses are living. After the annuity holder dies, the surviving spouses living expenses would presumably be lower.
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Period Certain: How Does This Annuity Work
Many people are unaware of what a period certain annuity is. However, its important 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.
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 with a minimum guaranteed payment period.
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Why A Period Certain Is A Bad Deal
The whole point of insurance is risk pooling. For example, consider 1,000 people who purchase homeowners insurance from a given insurance company. Most of those people will not have their homes destroyed by a fire or a tornado. And that fact the fact that the insurance company is going to collect money from all of those people without ultimately having to make a huge payout to them is how the insurance company can afford to make a huge payout to the person whose home is destroyed by a fire.
A key point, however, is that for every dollar that an insurance company receives in premiums, they keep some part of it to cover their administrative costs and to provide profit to shareholders. So only some of the money spent on premiums ultimately goes to pay for claims to people purchasing the insurance product in question. So in general it is unwise to purchase an insurance product unless:
With a lifetime annuity, risk pooling occurs because some annuitants will die prior to reaching their life expectancy .
But if the insurance company is providing a period certain, it knows it must pay out for that entire period. In other words, the annuity then offers no risk pooling for that period. Instead, whats occurring for that period is just the insurance company gradually paying your money back to you after taking a piece off the top for profit and expenses without any actual net insurance effect.
Tax Implications On Annuities
You’ll have to report the money you get from an annuity as income when you file your taxes. You may have to pay tax on this money. The amount of tax you may pay will vary depending on the product. Taxes will be different if you buy your annuity using registered savings versus non-registered savings.
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Whether You Want To Leave Money To A Beneficiary Or Your Estate
You may decide that you want to leave money to your estate or a beneficiary when you die. If so, you could consider buying a term-certain annuity or a life annuity with either a joint and survivor option or a guaranteed payment period.
The annuity is not the only option. For example, you can also keep some money in another product, like a savings account, TFSA or RRIF.
Life Annuity With Period Certain
A life annuity with period certain is a hybrid option that provides lifetime payments with guaranteed income for a specified number of years.
For example, if you purchase a single-life annuity with a 20-year period certain and pass away 10 years later, your beneficiary will collect income benefits for another 10 years.
Without the period certain option, income benefits will be terminated upon your death, and the insurance company will apply the remaining value of your contract as mortality credits, which they will use to pay the surviving annuitants.
Other annuitization options include:
- Systematic withdrawal
- Early withdrawal
Each of these payout options offers its own unique benefits. Speak with a financial advisor if you are unsure of which option meets your needs.
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Annuity Deferral And Annuitization
Most annuities are deferred, meaning several years elapse between the time the annuity is issued and the time it matures and is converted to an income stream, or annuitized. During the deferral period, the investment in the annuity grows at a fixed rate, a rate linked to a stock market index, or based on the performance of underlying subaccounts, which function much like mutual funds.
Once the annuity matures, the owner of the annuity may take the annuitys value as a lump sum or convert the annuity into a stream of periodic income payments. There are several major types of income options that may be selected when annuitizing an annuity.
Alternative Annuity Payout Options
As with every other feature of an annuity, payouts can be structured to suit your needs. If your objective is to provide income for your spouse upon your death or leave financial assets to a beneficiary, youll be better off purchasing an annuity with a different payout structure.
Annuity payout options include:
- Life Annuity with Period Certain
- Joint and Survivor Annuity
- Systematic Annuity Withdrawal
- Early Withdrawal
None of these options is inherently better than the others. According to the Bureau of Labor Statistics, payout decisions are not only about monetary value. The type of payout you select should align with your long-term goals and retirement lifestyle.
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Types Of Accumulation Annuities
There are four basic types of accumulation annuities offered by life insurers in New York. The four types differ in how investment income is credited under the contracts. The first three listed below are considered fixed deferred annuities because the account values do not vary directly with the investment experience of the supporting assets during the accumulation period.
Excess Interest Annuity. The excess interest annuity is the most common type of accumulation annuity. The contract guarantees a minimum interest rate for the life of the contract, but permits the insurer to declare discretionary excess interest. Such discretionary excess interest is generally determined and guaranteed annually in advance and is based upon present and anticipated earnings on current investments of the insurer. The periodic changes in excess interest permit insurers to offer rates that adjust in response to prevailing market rates.
- The minimum interest rate is based upon the five-year constant maturity treasury index. In most contracts, the minimum interest rate is set at issue, but some contracts permit the minimum rate to be adjusted periodically.
- Excess interest contracts provide flexibility with respect to premium payments .
- For excess interest annuities, the surrender charge is capped at 10% and generally reduces to 0% after a number of years .
For an EIA, it is important that you know the indexing features used to determine such excess interest. You should know whether:
How Your Annuity Income Is Protected
Canadian life insurance companies have the obligation to be members of a consumer protection agency called Assuris. Assuris protects policyholders up to a certain amount if the annuity provider is unable to pay. You will then continue to receive at least some of your money if your provider goes out of business.
The income you receive from an annuity covered by Assuris is insured as follows:
- 100% for monthly payments up to $2,000
- 85% for monthly payments above $2,000
For example, if your regular annuity income is $1,500 per month, you will continue to receive the full amount. If your regular annuity income is $3,000 per month, then you will continue to receive 85% of this amount, or $2,550.
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What Is An Annuity
An annuity allows you to receive a regular amount over a fixed period of time or for the duration of your retirement. To receive the payments, you have to buy the annuity. For example, at 60 years old, you buy an annuity costing $250,000, and it will pay you a fixed amount of $1,000 per month for the rest of your life.
What Is A Contingent On Life Insurance
A contingent beneficiary is a person who receives a benefit from an insurance policy when the primary beneficiary is unable to do so. In Texas, if a beneficiary of a life insurance policy forfeits his or her interest in the policy, the profits may be distributed to a contingent beneficiary specified by the insured.
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How Does A Life Annuity With Period Certain Work
A life annuity with period certain is paid for in installments over a set period or in a single lump sum payment, just like other annuities. When purchasing a period certain annuity, there are four things you need to decide:
- How much you want to invest.
- The size of the payments you want to receive.
- The length of time you want to receive them. This is typically in increments of 5 years, with common choices ranging from 5 to 20 years.
- When you want the payments to begin.
Note that these choices interact with each other. If you increase one, it will decrease one of the others and vice versa. If you choose a higher monthly payment, then the initial cost will be higher, the period will be shorter, or the starting date will need to be delayed.
There is also a hybrid option, often called an income for life annuity with guaranteed period certain benefit. This type of annuity provides guaranteed payments for your lifetime, but it also comes with a period certain phase. If you die during the period certain phase, your beneficiary will receive the payments remaining in the period.
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