6 Annuitization Payout Options & How They Work

Annuitization Options Explained: Picture of My Annuity store Billboard with City Skyline Background

Table of Contents

There are 6 different annuitization payout options to choose from. The annuity payout option you select will determine if your payments are guaranteed for one or two lives, a certain period of time and what will be paid to your beneficiary at death.

Annuitization Payout Options

  1. Period Certain

  2. Life Only

  3. Life with a Cash Refund

  4. Life with a Period Certain

  5. Joint Life and Survivor

  6. Joint Life with a Period Certain

Annuitization period:

  • Income generated from a lump sum
  • Money from the accumulation period or from an inheritance, lottery winnings, or court settlements
  • The money belongs to the insurance company

Parties involved in an annuity contract:

  1. contract proprietor
  2. annuitant
  3. beneficiary, and
  4. insurance company

6 Types of Annuity Payout Options Explained

1. Period Certain

The period certain annuitization payment option guarantees payments for a certain period of time. For example, a 10-year period certain payment option would pay you a specified amount each month for 10 years. At the end of the 10 year contract payments would stop.

Period certain payout options guarantee that the payments will be made for 10  years. If should die during the 10-year period your beneficiary would receive the remaining payments.

2. Life Only

Under the life-only option, sometimes called a pure life income, payments stop when the annuitant dies, regardless of when that occurs; one month or 20 years.

The advantage of the life-only option is that it pays the highest monthly income amount because there are no other contingencies and only the annuitant’s life expectancy was considered to determine the amount of the monthly payout.

The disadvantage of selecting a life-only payout option is the annuitant may die before they have received all of the original investment back in the form of annuity payments.

The life-only annuity payout option is also referred to as:

  • straight life,
  • pure life, or
  • life—no refund

3. Life with Cash Refund

In the Life with Refund option, the insurance company guarantees to at least pay back the original investment amoun0t. If the annuitant dies prior to receiving all of their initial deposit their elected beneficiary will receive any shortfall in a single lump sum payment.

Life with a cash refund

  • continuation of payments in the same amount as was being paid to the annuitant (owner)

4. Life with Period Certain

Life with a period certain option also pays an income for as long as the annuitant is alive. In addition, the annuitant selects a payment period, typically 5, 10, or 20 years, and payments are guaranteed to be made for at least that number of years.

If the annuitant dies before the end of the selected period, payments continue to the beneficiary for the rest of the period certain. No payments are made to the beneficiary if the annuitant lives past a period certain.

Life—Period Certain

  • Income for life as long as you live in addition to a minimum period of time
  • Choose a period such as 10 or 20 years
    • The annuity will pay the beneficiary if the annuitant dies within that period

5. Joint Life with a Period Certain

Joint life with a period certain option also pays an income for as long as either annuitant is alive. In addition, you select a payment period, typically 5, 10, or 20 years, and payments are guaranteed to be made for at least that number of years if both annuitants die prior.

If both annuitants die before the end of the selected period, payments continue to the beneficiary for the rest of the period certain. No payments are made to the beneficiary if the annuitant lives past the specified period of time.

Joint Life—Period Certain

  • Income guaranteed for the life of both annuitants
  • Choose a period such as 10 or 20 years
    • The annuity will pay the beneficiary if both annuitants die within that period

With the joint-life option, the insurer promises to make payments until the last survivor of the two annuitants dies. For example, if the two annuitants were a married couple and the husband died first, payments would continue to the spouse for the rest of her life.

The owner can choose for continued payments in the same amount for the survivor, or in a lesser amount such as two-thirds or one-half of their monthly payout.

Joint Life and Survivor

  • One dies
    • Payments to surviving spouse until their death
      • Same or reduced

6. Joint Life and Survivor

Selecting the Best Payout Option

All annuities fall into one of two general categories; the good news is it very easy to tell the difference between these two!

When do your payments begin?

  • If your annuity payments start within the first 12 months it is considered an immediate annuity.
  • All other annuities are considered “deferred annuities.”

Are your annuity payments guaranteed for life?

  1. lifetime annuities, which have a payment that is guaranteed to last for at least as long as the annuitant lives; and
  2. period certain annuities (or temporary annuities), which do not.

Frequently Asked Questions

The annuitant (insured) is similar to the insured in a life insurance policy. They are chosen by the owner to receive the income payments during the annuitization period. The annuitant’s life expectancy is used to determine the amount of the guaranteed payments. The annuitant must be an individual—a natural person—and cannot be a corporation or a trust.

The annuitant does not have the power to make withdrawals, deposits, change the names of the parties to the agreement, or terminate the contract. They must also sign the annuity contract.
The contract owner and the annuitant are frequently the same person.

Annuitization is the process of converting a lump sum into a guaranteed income stream that will last for a certain number of years or for life. Single premium immediate annuities begin paying income payments within 12 months of the contract issue date.

Request an Annuity Quote

Jason Caudill Picture standing chest up.
NBC logo
ABC Logo
fox logo
MarketWatch logo
Investopedia logo
CBS Logo
My Annuity Store, Inc. Logo
Request an Annuity Quote