In a “life with period certain” annuity payout option, the insurance company will pay the annuitant a set income for as long as the annuitant lives.
If the annuitant dies before the “period certain” expires, the company will continue to pay the income to the beneficiaries until the period certain expires. If the period certain is 20 years, it would be called a “Life with 20 Years Certain” payout option.
The fewer number of years that are certain, the higher the payout rate, because the insurance company is weighing its potential loss against mortality tables.
For instance, with no period certain or cash refund, the payout is called a Life Only option, and the insurer doesn’t owe anyone else a dime once the annuitant dies: in this situation, they will agree to pay the highest amount because there is a chance that they won’t have to pay it long.
The other option, Life with Cash Refund or Installment Refund, means that the insurer will pay any unused principal to the beneficiary in a lump sum or installments. Typically the rate offered for a Cash Refund option is similar to a Period Certain payout of between 13-18 years, and the insurer will often mark that crossover point on the illustrations.
Once you cross that point and choose to have more years certain, your payout will be less than the Life with Cash Refund or Installment Refund Option.
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