Period Certain

Period certain annuities are also called "temporary annuities." These annuities amortize the annuity payments over a set number of years. The insurance company calculates the interest it will pay on the annuity over a set number of years (e.g., 10 years). Then, the insurer divides the savings up over the time period specified by the annuity contract. The payments are scheduled so that all principal and interest is paid out over the period specified in the annuity.

Lifetime Annuity

A lifetime annuity is an annuity with a payment schedule that is spread out for your entire life. The insurance company amortizes the annuity using a mortality table. A mortality table uses information about the general population to predict life expectancy. The insurer notes your age, and then divides your total savings amount by the life expectancy associated with your age. The payments are sent to you for your entire life. If you outlive your predicted life expectancy, the insurer still sends you annuity payments until you die.

Warning

Your annuity payments are derived from savings that you give to the insurance company. Once these savings are converted to annuity payments, you won't have access to the savings anymore. You should be certain that you no longer want the savings and instead desire the payments.

Consideration

If you decide that you need both savings and payments from an annuity, consider converting only part of your annuity to monthly payments. When converting, keep in mind that temporary annuities generally pay a higher payment than lifetime annuities because the time period is known in advance and is normally shorter than your life expectancy. Also, temporary annuity payments can be given to a beneficiary if you do not live out the term of the annuity. Lifetime annuity payments remove the uncertainty of outliving your annuity payment term. But, payments are not passed to a beneficiary at your death.