An insurance period is an option for annuities where the beneficiary receives regular payments over a specified number of years, providing a steady stream of income and tax benefits. However, if the beneficiary outlives the payment period, they may experience a significant drop in income.
A insurance period is an option offered with many types of annuities. In lieu of a lump sum annuity payment, the beneficiary, or the recipient of the annuity payment, may choose to receive the balance of the annuity in regular installments over a specified number of years. This approach allows the recipient to enjoy a steady stream of income without interruption for that specific period of time. In other words, the source of income is considered certain for that predefined period of time.
The fixed term designation is only one option available with the annuity payment. Many financial plans that provide annuity payments offer the option of receiving regular payments for as long as the beneficiary lives. The benefit here is that the recipient is guaranteed a certain amount of income until the time of death, although the amount of those payments may or may not be as much as with a given period.
One of the benefits of a certain period is that the recipient does not have to pay taxes on the entire annuity during a specific tax period. By breaking down your annuity receipt into installments that are remitted over multiple years, you only need to pay tax on the amount you receive in each relevant tax period. This process can sometimes prevent the recipient from being placed in a higher tax bracket when a higher percentage of taxes is due on their annual income.
Another advantage of a certain period is that most plans of this type can be transferred in case the beneficiary dies. Assuming a beneficiary has been previously designated, the fund or plan issuing the annuity payment simply redirects the installment payments to that beneficiary. Those installment payments continue until the terms of the given period are met. This creates a simple yet effective way to provide for a spouse or other loved one even after the beneficiary is no longer alive.
A possible disadvantage of a certain period is that the beneficiary may live more years than the terms of the payment option cover. In this scenario, the beneficiary could reach a point where they experience a significant drop in income as the terms of the given period are met. For example, if the beneficiary at age sixty-five decides to enter a certain payment option period that involves monthly installment payments for the next fifteen years, that means the recipient will not continue to receive annuity payments after age eighty. . If the individual were to live several more years, he would have to rely on other sources of income to remain self-sufficient.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
