One way to look at this: what investment return would you need on the $56,060 such that in 30 years it would generate $1,581/mo?
In other words, solve [$56,060 * (1 + i/12)^(30*12)] * i/12 = $1,581 for i.
Comes out to 5.86%. If you think you can do better, take the lump sum. If you are satisfied with that return, take the age 65 annuity.
Similarly, you could ask what investment return you would need on the $119.79/mo so that in 30 years the interest would be ($1,581 - $119.79 = $1,461.21/mo)?
In other words, solve $119.79 * [(1 + i/12)^(30*12) - 1] / (i/12) * i/12 = $1,461.21 for i. Comes out to 8.63%. As you surmised, option 2 seems the worst of the 3.
Risk evaluation (e.g., will the insurance company still exist? Which spouse will outlive the other?) is a separate but of course related issue.