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 thelife ends before that period comes to an end, but will continue as a life annuity if thelife survives the period. Alternatively, there may be a guarantee that the purchaseconsideration will always be returned in full, even if the life ends before the end of theexpected term. In this situation, the balance of the purchase price will usually continueto be paid out as continuing annuity payments following death. Naturally, all thesepotential 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 lifesurvives 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 lifecontingency, and payments made will be treated as purchased life annuities rather than asannuities certain, including those payments made in consequence of the guarantee, afterthe life has dropped.
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