insurance

Term Certain Annuity

A type of annuity that pays out for a specific, predetermined period of time rather than for the rest of the recipient's life. Payments continue for the full term even if the annuitant dies, going to beneficiaries until the term expires.

Example

“John chose a 20-year term certain annuity to ensure his spouse would receive payments for the full two decades even if he passed away early.”

Memory Tip

Think 'certain time period' - the payments are certain to continue for a specific term, not dependent on anyone's lifespan.

Why It Matters

This type of annuity provides guaranteed income for a specific timeframe, making it ideal for bridging financial gaps like covering expenses until Social Security kicks in. It offers more predictability than lifetime annuities since you know exactly when payments will end.

Common Misconception

Many people think term certain annuities provide lifetime income like other annuities. In reality, payments stop completely after the specified term ends, regardless of whether the annuitant is still alive, making careful term selection crucial for long-term financial planning.

In Practice

Sarah invests $200,000 in a 15-year term certain annuity at age 50, receiving $1,400 monthly payments starting immediately. Even if Sarah dies after 5 years, her beneficiary will continue receiving the $1,400 monthly for the remaining 10 years. After 15 years, all payments cease completely, having paid out a total of $252,000.

Etymology

From Latin 'terminus' meaning boundary and 'certus' meaning certain, combined with 'annuus' meaning yearly, reflecting the fixed time period for payments.

Common Misspellings

term certian annuityterm certain anuityterm sertain annuityterm certain anuity

More in insurance

Other insurance terms you should know

deductibleThe amount you pay out-of-pocket before your insurance begin…insurance premiumThe amount paid periodically to an insurance company in exch…deductibleThe amount a policyholder must pay out of pocket before insu…copayA fixed amount paid by an insured person at the time of a me…coinsuranceA cost-sharing arrangement where the insured pays a percenta…out-of-pocket maximumThe most an insured person will pay for covered healthcare s…