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What Does Life Annuity With Period Certain Mean?

Stan Haithcock
September 25, 2023
What Does Life Annuity With Period Certain Mean?

Hey, Stan The Annuity Man, America's annuity agent. People always ask, is it Stan the Man or Stan The Annuity Man? Well, my dad named me after Stan Musial, a baseball player, for all you old-timers out there, you know who Stan Musial is. Of course, I'm a contrarian, and I didn't play baseball, I played basketball. I digress. What are we here for? We're here to talk about Immediate Annuities, life with a period certain. What does life with a period certain mean? It sounds crazy and kind of complicated. It's really not. I'm going to explain it and dig a bit deeper.

‌Breaking It Down

‌Life annuities with period certain, let's break that down into two parts. Life annuity. A life annuity means it will pay you for the rest of your life, regardless of how long you live. It's a transfer of risk. The value proposition only the annuity category can provide is a lifetime income stream. Life only, but with the period certain. Why would you add that period certain? I call that a backstop, meaning there's a guarantee attached so that if you die early in the contract, then some form of payment will go to somebody in your family, the list of beneficiaries of the policy. Let's go a little deeper than that.


‌Let's talk about life with period certain. What does that mean? I've written down some examples for us to go through, and let's go through them right now. Let's break down the first one: life with five years certain. That means it will pay you for the rest of your life regardless of how long you live. Let's say you died in year three. There's going to be two more years of payments. Five minus three equals two, right? What happens if you live past five years? If you live six years and die, then there's no money left for the beneficiaries. Does that make sense? Let's do it again.

‌Life with ten years certain. What does that mean? It means they will pay you for the rest of your life regardless of how long you live, correct? Let's say you die in year seven. How many more years of payments? Did I hear three? What? Yes, three. Correct. There are three more years of payments. If you died in year two, there are eight more years of payments, right? If you die in year 11, there are no payments. Let's do it again. Life with 20 years certain; life means life. Life means regardless of how long you live, they're on the hook to pay, and they meaning the annuity company. You die in year 11, how many more years of payments? Did you say nine? Yeah. Okay. Nine. Nine more years of payments. Do you get it? Do you get how it works? Okay, good. Live 21 years, no more money left.

‌What people are doing with these types of structures is they're saying, "I want a money stop. I want some type of guarantee, in addition to the lifetime income transfer of risk that I'm buying with the annuity company." That's just a reflection of people who worked hard, and you've worked hard, I'm assuming, right? Most people work hard and don't want all the money to go poof when they die. I did a recent YouTube video you need to watch about life-only structures. Life only is when your Learjet hits the mountain, and money goes poof. It's the highest payment.

‌Life With Installment Refund

‌Let's talk about the last one. Life with installment refund. They say, "Well, Stan, installment refund doesn't mean period certain." It actually does. What installment refund means is this is a period certain, but based on your life expectancy to the day. If you said, "Stan, I want a lifetime income payment, but I want to make sure that 100% of the money I don't use goes to the list of beneficiaries, but I want the highest contractual guarantee," that's life with installment refund. That's as close to having your cake and eating it in the annuity industry.

‌Life with five, life with ten, life with 20, life with installment refund. These can also be set up as joint life with five year, joint life with ten year, joint life with 20 year, and joint life with installment refund. Of course, the joint life covers both lifetime income streams.

‌Structures Inside of an IRA

‌Now, let's look at it from the standpoint of where you can use this. Can you put these structures inside of an IRA? The answer is yes. Can you put these structures inside of a Roth IRA? Yeah. Can you use it outside of an IRA structure, a non-qualified account? Absolutely. The difference is how the income stream is taxed. An Immediate Annuity or a Deferred Income annuity can be used in different account structures: IRA, non-IRA, and Roth IRA.

‌Which Pays the Highest?

‌Now, let's also take a look at which pays the highest. Now, think logically for a second: the less guarantee, the higher the payment because you're shouldering more of the risk. Under the life in five, life in ten, life in 20, the life with five year will be the highest contractual payout because it has the least amount of what I call backstop in there. Now, in life with installment refunds, people say, "What's that mean again, Stan?" Let's say your life expectancy is 14 years, eight months and three days. You've got 14 years, eight months, three days. That's the installment refund. Instead of being a 20-year period certain, it's life with a 14 year, eight-month, and three-day period certain. That's what life with installment refund means. Does that make sense? I hope this has cleared up life with a period certain.

‌Client Phone Call

‌I've got a couple of stories I have got to tell you. We're talking about life with period certain income annuities. The call I got recently is the call I get every week. It's a person who calls up, and they're thinking about an Immediate Annuity. They've talked to their friends who know nothing about Immediate Annuities. They spoke to their financial advisors, who probably don't know a darn thing about annuities, except that they hate them all for whatever reason, which is crazy because if you hate all annuities, you hate all restaurants. This person was under the assumption, like too many people are, and I blame the annuity industry, that life only is your only choice with Immediate Annuities and Deferred Income Annuities. It's not true.

‌The vast majority of people who buy lifetime income annuities do not buy life only because they want to make sure that there's some guarantee for their beneficiaries if they die early in the policy. A lot of other questions I get is, can I do a life with seven year or a life with six year or a life with 11 year, or some weird funky number that's not an even number, like five, 10, or 20 or 15. Absolutely. Annuity quotes are customized, and we will quote all carriers. If you said, "I want a life with an 11-year period certain," we can do that. Whatever that means to you, if that's how you want to structure it. Again, ask yourself the two questions. What do I want the money to contractually do? When do I want those contractual guarantees to start? Remember, it doesn't have to be life only; it can be life with a period certain.

‌Okay. We've covered the life of period certain. I've done another video on what is a Single Premium Immediate Annuity, which is a good thing to watch because that's where you buy the life with period certain. With that being said, I'd love for you to download this book for free: Single Premium Immediate Annuity Owner's Manual. You can actually download all six of my owner's manual, but this is the one that you need to probably take a look at. I like annuities for lifetime income, as they're the only products on the planet that guarantee income for life regardless of how long you live.

‌I would encourage you to go to my site to get a free quote. There is no obligation, no cost, and nobody bugging you, calling you, and showing up at your doorstep; you just get the quote. You can download the books for free and listen to my podcasts. Again, I encourage you to subscribe to my YouTube channel because I release a new video daily, Monday through Friday. I will see you next time.

Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

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