What is a Death Put?

A death put is an option added to a bond that gives the bondholder's estate the right, but not the obligation, to sell the bond back to the issuer at face value if the bondholder dies.

How Does a Death Put Work?

Bob buys a bond with a death put for $1,000. It matures in 10 years and pays a 5% coupon each year. Par value is $1,000.

Example #1: Bob dies in year 2, and interest rates are now at 3%. Because the price of a bond goes up when interest rates go down, Bob's estate can sell the bond on the open market for more than $1,000. The estate benefits from the decline in interest rates, just like if the bond did not have a death put.

Example #2: Bob dies in year 2, but interest rates have spiked to 8%. The bond now trades at well below par value, but Bob's estate can exercise the death put option and sell the bond back to the issuer for $1,000. Bob's estate doesn't lose money on an increase in interest rates because of the death put feature.

Why Does a Death Put Matter?

The death put option protects the bondholder's estate if the bondholder dies and interest rates are higher than when the bond was originally purchased.

A bond with an embedded put option increases the value of the underlying bond because it creates a floor on the price (though in this case the floor is contingent on a very specialized occurance). An issuer might offer a death put in order to make the bonds more attractive to certain investors.

But because the bond is so specialized, it may be difficult to find buyers in the secondary market if the bondholder is still alive but wants to sell. Any time you invest in a highly-specialized asset, you can expect the secondary market to be more challenging than if you purchased a standardized asset.

Ask an Expert about Death Put

All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Death Put.

Be the first to ask a question

If you have a question about Death Put, then please ask Paul.

Ask a question
Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.

Verified Content You Can Trust
verified   Certified Expertsverified   5,000+ Research Pagesverified   5+ Million Users