Life Option

AAA

DEFINITION of 'Life Option'

An annuitization-method option for a typical annuity offered by an insurance company with which the annuitant chooses to receive regular income payments from his or her annuity account for life. The insurance company guarantees that the annuitant will receive payments for the rest of his or her life, and structures the payment amounts to provide room for the insurance company's profit margin.

INVESTOPEDIA EXPLAINS 'Life Option'

With this type of annuitization-method option, the annuitant is essentially converting the lump- sum value of his or her annuity account into a guaranteed income, thus removing the risk that his or her retirement savings will run out before death. In this way, the primary benefit of the life option is peace of mind. However, should the annuitant die relatively soon after starting to receive funds, he or she will not receive the full value of his or her savings (the insurance company gets to keep what's left over).

RELATED TERMS
  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Systematic Withdrawal Schedule

    A method of withdrawing funds from an annuity account by which ...
  3. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  4. Annuitization Method

    A type of annuity distribution structure that gives the annuitant ...
  5. Annuitant

    1. A person who receives the benefits of an annuity or pension. ...
  6. Accumulation Phase

    1. A period of time when an annuity investor is in the early ...
RELATED FAQS
  1. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
  2. What kinds of costs are included in Free on Board (FOB) shipping?

    Free on board (FOB) shipping is a trade term published by the International Chamber of Commerce or ICC, that indicates which ... Read Full Answer >>
  3. What do insurance companies qualify as hazardous activity?

    An insurance company defines a hazardous activity essentially as any type of undertaking with a high level of risk of injury ... Read Full Answer >>
  4. What financial ratios are most useful for an investor to evaluate the liquidity of ...

    An insurance company, like any other nonfinancial company, needs access to liquidity in case it needs to fulfill its debt ... Read Full Answer >>
  5. How does a pension income drawdown work?

    While there are similar drawdown plans in the United States, a pension income drawdown plan most commonly refers to a specific ... Read Full Answer >>
  6. What economic indicators are important to monitor when investing in the insurance ...

    Inflation and interest rates are the best economic indicators to monitor when investing in the insurance sector. Unlike with ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Passing The Buck: The Hidden Costs Of Annuities

    These may look like good retirement vehicles, but beware of the fees buried in the fine print.
  2. Home & Auto

    An Overview Of Annuities

    These contracts provide a guaranteed income stream. Learn how they work and their benefits.
  3. Options & Futures

    Selecting The Payout On Your Annuity

    Make sure you understand your options for withdrawing your funds from this complex instrument.
  4. Insurance

    Who Needs Extortion Insurance?

    Insurance can help mitigate the financial damage of an extortion plot, but it’s important to read the fine print before taking out one of these policies.
  5. Insurance

    Indexed Universal Life Insurance: The Pros & Cons

    What you need to know, to see if these vehicles fit into your financial plan.
  6. Professionals

    Pension Annuity vs. Lump Sum: Which is Best?

    Which pension distribution option best serves your client, a pension annuity or a lump-sum payout?
  7. Insurance

    Do You Need Kidnap & Ransom Insurance?

    Americans working abroad – and high-profile individuals traveling frequently in kidnapping hot spots – should consider this type of protection.
  8. Insurance

    A Guide To Kidnap & Ransom Insurance

    Every year, thousands of people are kidnapped for ransom all over the world. This insurance offers protection – and peace of mind.
  9. Fundamental Analysis

    Calculating the Present Value of an Annuity

    The present value of an annuity is the current, lump sum value of periodic future payments as calculated using a specific rate.
  10. Insurance

    Should I Insure My Wedding Ring?

    It depends, in part, on the ring's value and your current insurance coverage. Here's a guide to making a decision that's right for you.

You May Also Like

Hot Definitions
  1. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited computational capacity for choice among strategies, then ...
  2. Inbound Cash Flow

    Any currency that a company or individual receives through conducting a transaction with another party. Inbound cash flow ...
  3. Social Security

    A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits ...
  4. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  5. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  6. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!