Posted in Finance, Accounting and Economics Terms, Total Reads: 245
Definition: Life Option
Life option is an option that is provided by insurance companies to the people. In this option they promise the customers or the annuitant who pays a particular or fixed amount to the insurance company in the form of installments each month throughout his or her life, a lump sum payment or a fixed amount of guaranteed payment to the annuitant after his or her retirement.
The amount that need to be paid to the insurance company per month is decided considering various factors such as age of the annuitant, the amount that will be paid monthly after retirement, profit margin of the insurance company, some fixed charges that needs to be borne by the customers etc. In this way annuitant can be assured that his funds will not get exhausted before he or she dies. Hence, this option provides a peace of mind to its customers.
This option may also be compared to the pensions provided by various other employers. Since, it is available for the lifetime of the annuitant hence; it is called as life option. So, this option provides financial support to its customers for lifetime. The benefit through this option can only be obtained by the annuitant after his or her retirement. However, the risk involved in such kind of option is shared by both the involved parties, i.e. by the annuitant as well as by the insurance company. Since, this plan can prove to be very helpful for those who live a long life even after their retirement, in that way they are able to derive maximum benefits through this scheme.
However, if the annuitant dies early after his or her retirement or sometimes in few cases if an annuitant dies before his or retirement, then in that case the benefit of providing such kind of option is derived or obtained by the insurance company.