Commutation

AAA

DEFINITION of 'Commutation'

The right that a beneficiary has to exchange one type of income for another. Commutation is offered to beneficiaries of annuities and life insurance policies, so that they might receive a lump-sum payment instead of a series of future payments. When this happens, the net present value of all remaining payments is computed into a single payment that is given to the beneficiary.

INVESTOPEDIA EXPLAINS 'Commutation'

The right of commutation can provide a larger sum of money to a beneficiary who needs it now. This can be a tremendous boon for those who need cash to pay for medical or other bills that cannot wait. However, this right must be accorded to the beneficiary in the policy.

RELATED TERMS
  1. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  2. Rider

    A provision of an insurance policy that is purchased separately ...
  3. Deductible

    1. The amount you have to pay out-of-pocket for expenses before ...
  4. Insurance

    A contract (policy) in which an individual or entity receives ...
  5. Annuity

    A financial product sold by financial institutions that is designed ...
  6. Variable Annuity

    An insurance contract in which, at the end of the accumulation ...
Related Articles
  1. Why Your Will Should Name Designated ...
    Home & Auto

    Why Your Will Should Name Designated ...

  2. Is Your Insurance Company Going Belly ...
    Home & Auto

    Is Your Insurance Company Going Belly ...

  3. Is there more to insurance policies ...
    Home & Auto

    Is there more to insurance policies ...

  4. Why might one insurance policy cost ...
    Home & Auto

    Why might one insurance policy cost ...

Hot Definitions
  1. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  2. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  3. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  4. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  5. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center