IPTM4210 - Purchased life annuities: different types of annuity: guaranteed and temporary annuities

Annuities are flexible products and may take several forms.

A life annuity may, for example, be guaranteed to run for a specified period, even if the life ends before that period comes to an end, but will continue as a life annuity if the life survives the period. Alternatively, there may be a guarantee that the purchase consideration will always be returned in full, even if the life ends before the end of the expected term. In this situation, the balance of the purchase price will usually continue to be paid out as continuing annuity payments following death. Naturally, all these potential benefits will be factored into the price of the annuity on actuarial principles.

Another variation is a temporary annuity, where the annuity comes to an end if the life survives beyond a specified period but otherwise terminates on the dropping of the life.

For tax purposes, these arrangements are still dependent on human life, there is a life contingency, and payments made will be treated as purchased life annuities rather than as annuities certain, including those payments made in consequence of the guarantee, after the life has dropped.