Which settlement option provides the recipient with an income that he or she cannot outlive?

Which settlement option provides the recipient with an income that he or she cannot outlive?

• A. Interest only option
• B. Fixed-period installments
• C. Life-income option
• D. Fixed-amount installments

Answer: (C)

Life-income option pays a stream of payments for as long as the recipient lives, so the income cannot be outlived. This protects the recipient from longevity risk—the chance of living beyond the money available—by guaranteeing payments for life. Other options don’t provide that lifetime guarantee. An interest-only option pays only the interest while the principal remains with the payer, so once the principal is depleted, payments stop. Fixed-period installments provide payments for a set number of years, regardless of how long the recipient lives. Fixed-amount installments pay a fixed dollar amount until the total settlement is exhausted, which may end before death if longevity is longer than expected.

Life-income option pays a stream of payments for as long as the recipient lives, so the income cannot be outlived. This protects the recipient from longevity risk—the chance of living beyond the money available—by guaranteeing payments for life.

Other options don’t provide that lifetime guarantee. An interest-only option pays only the interest while the principal remains with the payer, so once the principal is depleted, payments stop. Fixed-period installments provide payments for a set number of years, regardless of how long the recipient lives. Fixed-amount installments pay a fixed dollar amount until the total settlement is exhausted, which may end before death if longevity is longer than expected.