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

Annuities are flexible products and may take several forms.

A purchased 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. Alternatively, there may be a guarantee that the purchase consideration will always be returned in full, even if the life ends before the expected term expires.

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 death. All these potential benefits will be factored into the price of the annuity on actuarial principles.

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 including those payments made in consequence of the guarantee, after the life has ended.