Legal Definitions - life-income period-certain annuity

A life-income period-certain annuity is a financial product designed to provide a steady stream of payments to an individual for the rest of their life, with an added guarantee that payments will continue for a specified minimum number of years, even if the individual passes away prematurely.

Here's a breakdown of its key features:

• Life-income: This means the annuity is structured to make payments for the entire duration of the annuitant's (the person receiving payments) life, no matter how long they live. This provides financial security against outliving one's savings.
• Period-certain: This is a guaranteed minimum payment period. If the annuitant dies *before* this "certain" period ends, the remaining payments for that guaranteed duration will continue to be paid to a designated beneficiary (or their estate). If the annuitant lives *beyond* the period-certain, they continue to receive payments for the remainder of their life, and payments cease upon their death.

In essence, it combines the security of lifetime income with a safeguard to ensure that a minimum number of payments are made, protecting against the risk of early death.

Examples:

• Retirement Planning for a Couple:

  Maria, aged 68, purchases a life-income period-certain annuity with a 15-year period-certain. She wants to ensure she has income for life, but also wants to provide for her husband, who is five years younger, if she passes away early. Maria receives monthly payments for as long as she lives. If Maria were to pass away after 10 years, her husband would continue to receive the monthly payments for the remaining 5 years of the 15-year period-certain. However, if Maria lives for 20 years, she receives payments for all 20 years, and the payments stop upon her death, as she outlived the guaranteed period.

  This example illustrates how the "life-income" component provides payments to Maria for her entire life, while the "period-certain" component ensures her husband receives payments for a guaranteed minimum duration if she dies prematurely.

• Securing a Legacy for a Dependent:

  A wealthy individual establishes a life-income period-certain annuity with a 20-year period-certain for their adult child who has special needs. The goal is to provide a stable income for the child's entire life, but also to guarantee that funds will be available for at least two decades to cover care expenses, even if the child passes away unexpectedly. The child receives regular payments for as long as they live. If the child passes away after 12 years, the remaining 8 years of payments from the 20-year period-certain are paid to a designated trust set up for their care, ensuring continued financial support for the intended purpose.

  Here, the "life-income" aspect ensures the child's long-term financial stability, and the "period-certain" aspect provides a safety net, guaranteeing a minimum payout duration to a trust even if the child's life is shorter than anticipated.

• Settlement from a Legal Case:

  After receiving a substantial settlement from a personal injury lawsuit, John decides to invest a portion into a life-income period-certain annuity with a 10-year period-certain. He wants to ensure he has a guaranteed income stream for the rest of his life, but also wants to make sure his children receive some benefit if he were to die within the next decade. John receives monthly payments for the rest of his life. If he passes away after 7 years, his children, as designated beneficiaries, will continue to receive the monthly payments for the remaining 3 years of the 10-year period-certain. If John lives for 25 years, he receives payments for all 25 years, and the payments cease upon his death.

  This demonstrates how the "life-income" feature provides John with long-term financial security from his settlement, while the "period-certain" component ensures a minimum payout to his heirs, addressing concerns about early death.