What Does Commuted Value Mean?
Commuted value is the current lump sum payment that would be required to entirely pay out a pension, an annuity or a life insurance policy. Many people choose to receive their benefits from these financial instruments in commuted value lump sum payments, rather than wait many years for the full value to be paid out.
Insuranceopedia Explains Commuted Value
When it comes to receiving payouts for pensions, annuities and life insurance policies, many people like to space it out over a number of years or even decades because they view it as a more stable and secure way to handle the money. This is not always the case, however. For people who choose to get the commuted value in a lump sum payment, the commuted value is calculated by adding up the net present value of all future payments.