Term Certain Annuities

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A term certain annuity is an annuity in which the annuity is paid over a predetermined period of time. An annuity is a contract purchased with a specified amount of funds that is then paid back to the annuitant over a specified period of time. Annuities work much like loans in that a large amount is paid to an annuity seller then paid back to the annuitant in level payments over a period of time with interest.

Payment

Term certain annuities, sometimes called fixed period annuities, are annuity contrasts that are paid out over a fixed period. This decided period is determined upon purchase of the annuity contract. The annuitant pays a designated sum of money to be paid back over that fixed period of time. If the annuitant should die during the term certain annuity, the remainder of the annuity purchase is usually granted to the beneficiary.

Term certain annuities pay varying amounts depending on how much money was used to purchase the annuity. If a small sum was used to purchase the term certain annuity, then each payment back to the annuitant will be small. If a large sum was used, then payments will be larger.

Reasons to Purchase a Term Certain Annuity

Since there is the possibility that the annuitant will outlive a term certain annuity, there are few reasons why an individual might choose this type of annuity. Consulting with a financial professional is recommended for this type of annuity. However, there are some reasons why one might choose to purchase a term certain annuity:

• For wealthy individuals who wish to defer taxes on income for a fixed period of time a term certain annuity contract can sometimes be an option.
• Individuals who are waiting for other retirement benefits to begin and need income coverage during that time.
• As an alternative to mutual funds and investments for a short period of time after retirement.

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