Period Certain
A period certain feature on a SPIA or DIA guarantees payments for a specified number of years even if the annuitant dies before the period ends. Common period-certain durations are 10 years, 15 years, and 20 years. If the annuitant dies during the period certain, payments continue to the beneficiary until the period ends. If the annuitant lives past the period certain, payments continue for life under "life with period certain" payout — the annuitant gets both the period guarantee AND the lifetime guarantee.
A 65-year-old purchases a SPIA with a "life with 20-year period certain" payout. The carrier pays $565 per month — slightly less than the $605 per month for a life-only payout. If the annuitant dies at age 72 (after 7 years of payments), the beneficiary receives $565 per month for the remaining 13 years of the 20-year period. If the annuitant lives to age 90, the carrier pays $565 per month from age 65 to age 90 (25 years), and the period-certain feature provides no additional benefit beyond year 20.
Why it matters
Period certain features address the "what if I die early" objection to SPIAs. Without period certain, a consumer who dies one month after annuitizing loses the entire premium. With a 20-year period certain, the beneficiary recovers the remaining payments. The cost is a slightly lower monthly payment — typically 5-10% lower for a 20-year period certain compared to life-only.
How to evaluate
Compare the period-certain monthly payment to the life-only monthly payment. The break-even — the age at which life-only cumulative payments exceed period-certain cumulative payments — typically falls in the early 80s. Consumers in good health with long family longevity histories may prefer life-only; consumers with average or below-average health may prefer period certain.
In the contract
Look for "period certain," "guaranteed period," "life with period certain," or "life with X-year guarantee." The contract specifies who the beneficiary is and how payments continue if the annuitant dies during the period.
Related terms
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