Commutation

Plain English Definition: A financial arrangement settling future payments in a lump sum.

What Commutation really means for someone with an insurance policy

It typically occurs in reinsurance or structured settlements, helping resolve long-term payment obligations through a one-time settlement.

Commutation Real World Examples

• An insurance company pays a reinsurer a lump sum to settle future claims liabilities.
• A claimant accepts a lump sum instead of ongoing disability payments.
• Settling legal claims through one-time payments avoids extended litigation.