Life Income Option

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Definition - What does Life Income Option mean?

A life income option is an option that is available with certain life insurance policies; it essentially converts the policy into an annuity, paying out an income on a regular basis. Payments can be made monthly, quarterly, semiannually, or annually.

Most commonly, two types of life income options are offered:

  • The Life Option, which provides payments for life, regardless of age of death, only to the annuitant (the person receiving the annuity).
  • The Joint & Survivor for Life Option, which provides payments to the annuitant and, upon the death of the annuitant, to the spouse of the annuitant (if still alive), again for life. For a given premium, the payouts will be lower on a joint & survivor option as it is based on both spouses’ life expectancies.

Insuranceopedia explains Life Income Option

Both Life Income Options have advantages and disadvantages. The obvious advantage is that no matter how long you live, or either you or your spouse live under the joint & survivor option, you have a guaranteed income stream. This stream will lose value over time due to inflation as the payout is fixed, but you will still have an income. If you, or you or your spouse under a joint & survivor option, live to an old age, say 100 years or older, you will receive an outstanding return on your investment.

The big disadvantage, especially with the life option, is that as soon as you die the payments stop. This is the case even if the insurer only made one payment to you. Other annuity options offer transfers to beneficiaries, such as children. These other options come with a price, which is that for a given premium the payouts will be lower, but they increase the likelihood that you will receive a good return on your investment.


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