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.

BREAKING DOWN '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).

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