Life Income Option
What Does Life Income Option Mean?
A life income option is available with certain life insurance policies and essentially converts the policy into an annuity, providing regular income payments. These payments can be made monthly, quarterly, semiannually, or annually.
There are two common types of life income options:
- The Life Option: This provides payments for the annuitant’s lifetime, regardless of when the annuitant passes away.
- The Joint & Survivor for Life Option: This provides payments to the annuitant, and upon the annuitant’s death, to the annuitant’s spouse (if still alive), continuing for life. For a given premium, payouts are generally lower for the joint & survivor option, as they are based on the life expectancies of both spouses.
Insuranceopedia Explains Life Income Option
Both life income options offer advantages and disadvantages. The main advantage is the guaranteed income stream, regardless of how long you or your spouse live under the joint & survivor option. While the payouts are fixed and may lose value over time due to inflation, you are assured of receiving income. If you, or you and your spouse under the joint & survivor option, live to a very old age, such as 100 or more, you could see a significant return on your investment.
The major disadvantage, particularly with the life option, is that payments stop as soon as you pass away. This includes situations where the insurer has only made one payment to you. Other annuity options offer the possibility of transferring benefits to beneficiaries, such as children. However, these options come at a cost: for a given premium, the payouts will be lower, but they increase the likelihood of a better return on your investment.
