Longevity Insurance - Income Supplement for Old Age
- Publish Date: 2011/08/24
- Author: Carol Eastman
Outline: Information on longevity insurance a type of policy for seniors that issues payments when you hit an advanced age generally 85.
Main DigestWhat is Longevity Insurance? Longevity insurance policies are deferred income annuities that issue payments only when, and if, you hit an advanced age.
Outliving ones retirement savings is a financial nightmare that haunts many retirees. That's why a handful of insurers have recently introduced a new type of annuity that caters specifically to that fear.
Longevity insurance is designed to pay to the policyholder a benefit if he or she survives to a pre-established future age. While any lifelong life annuity is a longevity insurance in the loose sense, in the stricter sense it is a policy that only pays out from a rather high age, e.g. 85.
The benefit is generally paid in the form of an annuity for the remainder of the individual's life, though alternative benefit forms may be provided depending on the terms of the actual policy. Not many insurance companies currently offer these policies. The most notable are Metropolitan Life Insurance, Symetra Life Insurance Company and Hartford Insurance Companies. The main use of these products is to provide retirees with a manner to hedge economically against living to an age at which they may have diminished financial resources.
Aside from the obvious problem of just not having enough money saved up, longevity risk is probably the number one challenge in planning a retirement. If you do not know how long you are going to live, how can you know how much of your savings you can spend each year
With life expectancies on the rise, millions of people are now facing the challenge of how to support themselves into their 80s, 90s, and even beyond. Longevity insurance is one possible solution as a specialized annuity designed to begin making lifetime income payments to recipients at a trigger date of their choosing.
The odds are rising that more Americans will run out of money in old age. Average longevity is rising dramatically at a time when many older Americans are struggling with damaged retirement accounts, unemployment and rising expenses for healthcare. Last year the financial crisis boosted sales of longevity insurance substantially, as worries about financial stability mounted. This has led more individuals to talk to advisers about options for generating income to last through their lifetimes.
Approx example : If you bought a $10,000 deferred fixed-income annuity from an insurance company at age 65, in 20 years that annuity will start paying $137 a month, assuming the investment grows at the minimum guaranteed 3%. But with their basic longevity product that starts income payments at age 85, and has no death benefit or withdrawal options like the annuity, your monthly payout would be $710.
How long will you live
On average, a 65 year-old man will live more than 17 years; a 65 year-old woman will live another 20 years. But these are averages, meaning the odds of living longer are considerable, and they're rising. For someone reaching the age of 85, living another five to 10 years is normal. See our Life Span Expectancy Chart for average lifespans in different countries.
There are currently two main types of longevity insurance:
The first is a flexible product where individuals can start income anytime after two years from the time of purchase up until age 85. There are death benefits and the insurance can be canceled at any time as long as payments haven't started and the money will be returned with an adjustment for interest rates.
The second is the max, which provides a maximum level of income, but only starts paying out when an individual turns 85. There are no cancellations allowed and no death benefits, but it provides the highest level of income.
When to Buy Longevity Insurance:
Most people purchase longevity insurance at or just prior to the time they retire. Figure out how much of your essential expenses you can cover with Social Security, pensions, and other forms of guaranteed income and consider buying coverage for the rest. Experts recommend you use no more than 10 to 15% of your assets to purchase a policy, and leave the rest in your portfolio to provide income until it kicks in. Also, when choosing a product, remember that you are buying income that will not kick in for 20 years or more. In Addition longevity insurance typically has no death benefit and doesn't allow any withdrawals before age 85.
Be sure to speak with a reputable insurance company, or your financial adviser, for more information, facts, and up-to date figures if you are planning on purchasing longevity insurance. No matter what, longevity insurance should be, at best, only a small part of your long-term financial plan.
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