A period certain is a feature added to a lifetime annuity payout that guarantees payments will continue for a minimum number of years – typically 5, 10, 15, or 20 – regardless of when the annuitant dies. If death occurs during the certain period, the remaining payments continue to a designated beneficiary until the period ends.
How Period Certain Works
Period certain is most often paired with a single life annuity to address its biggest downside: that payments stop entirely if the annuitant dies in the early years. A “10-year period certain” guarantees at least 120 monthly payments even if the annuitant lives only one month after the contract is annuitized. After the certain period ends, payments continue for the annuitant’s life only.
Cost of Adding Period Certain
Adding a period certain reduces the monthly payment because the insurer has accepted additional risk. A 65-year-old man buying a $100,000 SPIA might receive $580/month single life, $555/month with a 10-year certain, or $530/month with a 20-year certain. The longer the certain period, the larger the payment reduction. For most clients, a 10-year period certain is a good middle ground – meaningful protection with a small income hit.
Period Certain vs Cash Refund
If you want to ensure your beneficiaries receive a minimum total amount rather than a specific number of years of payments, a refund annuity may be a better fit. The two structures address the same concern – early death wasting the premium – in different ways.
