Commutation

Definition - What does Commutation mean?

Commutation is the change of the mode of payment. In insurance, it means that insurance payout can be altered, either from a series of periodic payments to a lump sum or vice versa.

Insuranceopedia explains Commutation

Commutation happens when a party is not satisfied with the system of payment and they have the legal right to modify it. For example, a debtor might ask their lender to break down a huge payment into a series of smaller amounts so that they can manage their debt repayment more easily.

In terms of insurance, the beneficiary of an annuity can ask the insurer to turn the death benefit into a lump sum or a series of payments so that it can be used as a reliable source of income.

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