Life Option

What Is a Life Option?

The life option is one illustration of a payout scheme for an annuity contract. It guarantees periodic payments to the annuitant until the end of their life. Since that timetable is, by definition, obscure, the life option includes some financial risk for both the annuitant and the insurance company making those payments.

How a Life Option Works

A life option is one of several payout plans accessible to the owner of a annuity contract. Annuities are insurance products that investors commonly purchase to give a post-retirement income stream. The investor adds to the annuity periodically or in a lump-sum contribution, then appreciates tax-deferred growth on that investment. The appeal of annuities lies in the certainty of the payouts, paying little heed to which type of payout structure the annuitant chooses.

Among these payout plans, the life option is unique in that the length of the payout period is obscure. The investor will receive payments until they kick the bucket. Dissimilar to the payout period, the payout amount is known. This means that an annuitant who picks the life option for payouts will earn more from their investment assuming they live long enough for their payouts to surpass their contributions to the policy.

Different options for annuity payouts will generally either underline a fixed period or a fixed total amount of payouts. A fixed period contract can be helpful for an investor who expects payouts from one more retirement product to kick in sometime in the future and guarantees payment to a beneficiary in the event that the investor dies prior to the period's end. Then again, a fixed amount contract can be risky in the event that this is the main source of retirement income, and the annuity esteem is depleted before the investor bites the dust.

At last, an annuitant can choose a lump-sum payout, yet this amount will generally be not exactly expected annuitized payments and may trigger tax liabilities that would somehow not be a concern.

Joint-Life versus Life Option

A joint-life payout plan takes into consideration annuitized payouts to go on past the death of the annuitant and until their spouse dies. This can be a smart decision for couples in which one spouse has not developed an adequate retirement reserve.

A variation of the joint-life payout plan is the life annuity with period certain, under which payments go on after the annuitant's death however at a lower dollar amount and for a limited period for the spouse or beneficiary.

In conclusion, a portion discount payout scheme guarantees payments until the death of the annuitant, trailed by a lump-sum payment to a beneficiary of any excess assets. In these cases, greater payouts include some significant pitfalls. Guaranteed spouse or beneficiary benefits will require higher premiums.

Features

• The appeal of annuities is the certainty of the payouts, paying little heed to what payout structure the annuitant picks.
• Annuities are financial products that permit investors to appreciate tax-deferred growth on cash — either periodic or lump-sum payments — and afterward annuitize the plan during retirement.
• The joint-life option keeps paying the spouse assuming that the annuitant dies.
• A life option is a payout method for an annuity that guarantees periodic payments forever.