Annuities Guaranteed Annuities

Annuities with Guaranteed Duration

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As a rule, annuities provide an income stream until the annuitant dies. However, there are alternatives. The duration of an annuities pension does not depend on whether yours is an immediate annuity or deferred annuity; each type can provide any of the following payout options.

Life annuities

Life annuities are the default. Life annuities provide steady, lifelong income.

In a sense, this means that the duration of your annuity is not guaranteed; its lifetime depends on your lifetime (also not guaranteed). If you live a long time after your annuity begins paying out, your annuity will continue to pay out for just as long; if you live but a brief while after the payout begins, your annuity will continue only just as long.

In another sense, the financial protection of your annuity is guaranteed. It is guaranteed to last for as long as you last. And the size of your pension payments is guaranteed as well (the size of your pension payments becomes fixed at the time you start your pension).

Period certain annuities

Period certain annuities (also called "term certain annuities") do not guarantee a lifetime income stream but do guarantee an income stream for a certain number of years. What if you die during the payout period? Whoever inherits your annuity will receive the remaining pension payments as they come due.

Alternatively, you can purchase a life annuity with a period certain option. This annuity guarantees a minimum pension period. If the annuitant outlives the guarantee, then the pension continues paying for life; if the annuitant dies before the guaranteed minimum pension period, the annuity pays its pension to the inheritor of the annuity for the remainder of the guaranteed period.

Cash refund annuities

What if you put $10K into an annuity, then die after receiving only $3K in pension? With a cash refund option, the remaining $7K will be refunded (to your estate). The annuity still provides a lifetime income stream but offers additional recompense (a refund of the principal) if the annuitant dies before the pension has remitted all of the principal.

Installment refund annuities

An installment refund option works like a cash refund option, except that the refund is issued in a series of payments instead of a lump sum. Whoever inherits your annuity will receive pension payments until the principal is exhausted.

Joint and survivor annuities

The joint-and-survivor option allows the annuity pension to rely on the lives of two people (spouses). Even if one spouse dies, the annuity will continue to pay its pension. To reduce the cost of your joint-and-survivor annuity, you may arrange in advance for the pension to decrease following the first death; e.g. after your spouse dies, your pension will only pay half or 2/3 of what it was paying before.

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