What is a life contingent payout option in relation to annuities?

A life contingent payout option in annuities refers to a payment structure that guarantees income for the lifetime of the annuitant. This means that as long as the individual who holds the annuity is alive, they will continue to receive regular payments. This form of payout is particularly advantageous for individuals who seek financial security in retirement since it mitigates the risk of outliving one's assets.

The significance of this option lies in its ability to provide a steady stream of income that can help cover living expenses throughout retirement. Unlike other payout options that may only provide payments for a fixed period or are dependent on various factors like investments, a life contingent option ensures that the annuitant is financially supported for the duration of their life.

This structure caters to the needs of retirees who prioritize certainty and stability in their income planning, emphasizing the importance of understanding different annuity payout options when assessing retirement strategies.