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Death Put

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A death put, sometimes called a survivor's option, is a feature of certain fixed income or debt instruments that allow for the estate of a deceased investor to "put back" or redeem that instrument without penalty. Certain certificates of deposits that otherwise charge a penalty for early withdrawal of principal wave this penalty in the case of a death put. Bonds that carry a death put usually redeem for par value when the death put is exercised. In either case the benefit of the death put cannot be realized unless the original investor in the asset has died. Assets that carry a death put are sometimes used in portfolios for estate planning purposes. Because investor mortality risk must be taken into account when underwriting assets that carry a death put, these assets are more complex and expensive to issue. A death put may be used to entice investors who might otherwise invest in a higher coupon fixed income asset.

The U.S. government at one time offered bonds with a death put nicknamed flower bonds. These bonds were redeemable at par value upon the death of the registered holder regardless of the underlying cost basis. The purpose of the death put on these bonds was to pay for estate taxes for the decedent. These flower bonds are no longer offered by the U.S. government, however, other bonds that do offer a death put can be found in the bond market.



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