Years Certain Annuity

A years certain annuity is a product of retirement income paid to the holder on a periodic basis, most often monthly, over a particular number of years. The main function of this annuity, like all others, is to provide a stable income after retirement. Nevertheless, the main difference of a years certain annuity is that it provides this income for a predetermined period of time, and does not depend on the annuitant's life length, while a life annuity provides for payments that are made for the remained life of the recipient of the annuity, and sometimes is paid to the spouse of the recipient. Other names of a years certain annuity are: period certain annuity, annuity certain, fixed period annuity, guaranteed term or guaranteed period annuity.

A Years Certain Annuity work principle

Generally speaking, an annuity reflects a financial product produced by an insurer or other financial company that makes a series of payments within a certain interval of time to a beneficiary, which is named the annuitant. Most often, retired persons use annuities to generate a constant stream of income.

The accumulation phase is the interval during which a person tries to save money for retirement, it is a particular formation of fund, payments from which will be formed later. The annuitization phase involves making payments, and their duration depends on the type of annuity purchased. Payments of certain types of annuities are made in a specific interval of a certain number of years, while the payment of others is paid to the receiver for as many years as that person has years left to live.

Because a years certain annuity is paid at fixed intervals and not until the death of the beneficiary, it usually contains larger monthly payments than life or immediate annuities.

Payments are made to the owner of the annuity before the end of the due date, and in the event that the annuitant does not live up to the due date, the payment will be received by its specified beneficiary.

A life annuity is the more common instrument, a years certain annuity is much less common. The years certain annuity variety is between 5-30 years. As an example, the annuitant selected an annuity with a 5-year period, but his death occurred in the 2nd year, his designated receiver would get payments for the remaining 3 years. But if the annuitant died almost immediately after the end of the 5th period, then his official recipient would be left without any payments. 

Reasons to choose a Years Certain Annuity

With a years certain annuity and its set schedule, the recipient knows the payment term and accurate sum of which he or his beneficiary will receive. In addition, in cases where the specified period is less than the life expectancy of the measured life, the payments will be greater than the payments from the annuity.

At its core, a fixed period of a years certain annuity provides revenue for a specified period of time, whether the annuitant lives that long. This is advantageous if the death of the payer occurs prematurely.