Annuity Certain: Definition, Payout Rules & LLQP Exam Key Notes
An annuity certain (also called a term-certain annuity) pays a guaranteed income for a fixed number of years, whether the annuitant lives or dies — if the annuitant dies before the period ends, payments continue to a named beneficiary or the estate until the term runs out.
Why it matters on the LLQP exam
The Segregated Funds and Annuities module tests annuity classification relentlessly, and the organizing question is always: does mortality matter?
- With an annuity certain, mortality is irrelevant. The insurer owes payments for the whole fixed period — 10, 15, 20 years — whatever happens to the annuitant. With no longevity pooling, life expectancy does not price the payments.
- With a life annuity, payments stop at death unless a guarantee feature was added. A life annuity with a 10-year guarantee is fundamentally different: it pays for life, with the guarantee only setting a floor.
The exam's traps:
- Confusing an annuity certain with a life annuity that has a guarantee period. Read for the words "for a fixed period" versus "for life."
- Assuming payments end at death. With an annuity certain they never do — the beneficiary or estate keeps collecting.
- Assuming the annuitant's age affects the payment amount. It does not; only the deposit, the period, and interest rates do.
Annuities certain suit needs with a known end date, like bridging income to a pension start date.
Example question
Gordon buys a 15-year annuity certain and dies three years later. What happens to the remaining payments?
- They stop immediately because the annuitant has died
- They continue to his beneficiary or estate for the remaining 12 years
- They are commuted and forfeited to the insurer
- They convert to a life annuity for his spouse
Answer: B — an annuity certain is payable for the full fixed period regardless of death; the remaining payments go to the beneficiary or estate.
Annuities are the payout-side cousin of the accumulation products in the segregated funds hub, and they pair naturally with the protection concepts covered under whole life insurance.