An annuity contract includes provisions for paying out benefits to the annuitant or beneficiary. There are many payout options available. Generally, a portion of each annuity payment is income; thus, federal income tax applies. Some of the common payout options are discussed below.

An annuitant may be able to receive income payments in a lump sum.

In a straight life payout option (sometimes referred to as a nonrefund annuity or pure annuity), the income payments are disbursed as long as the annuitant it alive. Payments discontinue after the annuitant's death and are not made to any beneficiary.

In a period certain option, payments will be made for a period not to exceed a specified number of years. In a life annuity with a period certain, the annuity is paid as long as the annuitant lives. If the annuitant dies before the "period certain," typically between 10 and 20 years, the beneficiary receives the annuity payments for the remainder of the period certain.

In an amount certain option, fixed monthly income payments in an agreed-upon amount are paid until the fund is exhausted. Regardless of whether the annuitant dies. In an amount and period certain option, specified annuity payments are made for a specific period of time regardless of whether the annuitant dies.

In a joint and survivor option, the annuity continues until the survivor of the two annuitants dies. The amount of the annuity payments to the survivor typically decreases, but the amount of the decrease (if any) depends upon the plan chosen. A variation is the joint annuity option in which the annuity terminates upon the death of one annuitant.

In a life income with guaranteed period option, the annuitant receives fixed monthly income payments for life. The beneficiary continues to receive payments until the guaranteed period expires. A variation of this option is the life income with guaranteed return of the amount paid option. The annuitant receives a fixed monthly income payment for life, but payments to the beneficiary continue until all payments made equal the amount paid for the annuity.

In a cash-refund annuity, there is a lump sum payment upon the annuitant's death. The amount is the difference between the price paid for the annuity and all payments received prior to the death.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.