Life With Guaranteed Term

Life with guaranteed term is a type of annuity investment in which the purchaser of the annuity, known as the annuitant, chooses to receive regular income payments that are guaranteed to last the rest of his or her life, but is also guaranteed income payments for a minimum number of years following the start of the annuitization period, even if the annuitant dies before the end of the term. The term refers to the number of years over which payments are guaranteed, typically 10, 20 or 30 years.

Life with guaranteed term is a type of annuity, a contract between the annuitant and an insurer whereby the investor pays the insurance company one or more premium payments in exchange for a guaranteed stream of income at a later date. Annuities have been in existence since ancient times, when many wealthy Romans saved for their old age using annuity-like investments. They have been particularly popular during periods of great financial stress, like the Great Depression, when other, more risky, investment strategies have faltered. Annuities, unlike many other types of retirement savings, guarantee the holders of the annuity income for the rest of their lives.

Annuities with guaranteed term differ from standard annuities because they guarantee a set number of payments,  even if the annuitant dies an early death. This guaranteed set of payments reduces the risk  that a policyholder will die an early and therefore not recoup their premium payments. These guaranteed payments make life-with-guaranteed-term annuities more expensive to purchase than standard annuities. Furthermore, compared to the annuitants who have the standard life option, without guaranteed-term coverage, annuitants who choose this option generally receive smaller income payments. 

Annuities are just one strategy among many for providing for your retirement. Personal finance experts typically advise savers to start their retirement portfolio by investing in a 401(k) retirement fund, or an individual retirement account, also known as an IRA, before allocating funds to an annuity. These experts advise to start with a 401(k) or IRA because such vehicles are tax advantaged. But if you have maxed out your tax-advantaged contributions to these types of investments, it may makes sense to buy an annuity for the certainty they provide. Savers in a particularly high tax bracket also may find annuities advantageous, because they defer income to later in life, when savers may find themselves in a lower tax bracket.