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Finance

What is Longevity Insurance?

By Felicia Dye
Updated May 17, 2024
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In many cultures the life expectancy has increased or is expected to increase in the near future. While this is good news in one sense, it has the potential to pose financial problems for a lot of people. Longevity insurance is coverage that is designed to offer fixed monthly income late in life. The majority of the individuals who purchase longevity insurance tend to be those who are approaching retirement. Younger individuals have less incentive to invest in this type of coverage because they have more time to adjust their financial planning to cover a longer lifespan.

Longevity insurance is generally designed as a type of investment known as an annuity. Annuities operate on the basis that a person will invest money at one time. Then, at some time in the future, she will reap the benefits, which are often distributed by way of payments.

In the case of longevity insurance, it is common for investors to make an initial investment at least 20 years before receiving any return. Many companies withhold payments until a person is at least 80 years old. Some may even delay payments until the age of 85 or 90. Once an individual’s annuity matures, policies are generally designed so that she will receive a set monthly payment for the rest of her life. It should be noted that in many cases the initial investment is a lump sum that may negate this type of coverage as an option for some people.

The majority of the individuals who purchase longevity insurance tend to be those who are approaching retirement. Younger individuals have less incentive to invest in this type of coverage because they have more time to adjust their financial planning to cover a longer life. This type of coverage is marketed as having numerous benefits. One of them directs individuals’ attention to the age at which they would receive payments. It is often pointed out that this is a time when costs of care and medical expenses are likely to increase, so an extra source of income will likewise be beneficial.

There are risks associated with longevity insurance. One of them is that a person will pass away before the maturity of his annuity. For these reasons, individuals who consider longevity insurance are advised to inquire about the availability of early payouts and death benefits. If these options are available, it is likely that there will be added costs for utilizing them.

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Discussion Comments

By angelBraids — On Aug 04, 2011

@rugbygirl - I would say that longevity insurance sounds perfect for those with good genes. I'm pretty sure that living far past the average age is something you can count on, considering your family history.

Would this be taken into consideration when you apply for a policy? I imagine they'd want to charge you more because pay out is so much more likely.

For many of us it just seems like a major financial risk. My future looks less optimistic, with several close relatives having died of heart related problems.

I do take care of my health but I don't expect to be around when I'm much past eighty. Now if it kicked in at something like seventy five I'd be interested.

Insurance to cover the cost of full time nursing care is the thing I am looking around for. It seems more realistic, but hardly as attractive as the thought of a nice income every month when I'm old.

By rugbygirl — On Aug 04, 2011

@Kat919 - If you live a long time, you could potentially make back many times what you put in. With a gap of thirty years, for instance, each annual payment could be more than your one initial payment! A lot more--like fifty percent.

My father is considering purchasing longevity insurance. His grandparents lived well into their 90s and his parents appear to be doing the same. He wants to make sure that if he has the good fortune to do the same, he won't find himself broke.

Remember that if you invest the money in the stock market, you could lose it and be left with nothing to live on! Of course, if the company goes out of business, you could be up a creek, too. So my dad is only looking at companies with a long history.

By Kat919 — On Aug 03, 2011

I'm having trouble seeing the advantages of longevity insurance. If it takes a big lump sum and benefits don't start for so long, wouldn't it just be better to invest the money? It could grow a lot in 20 years.

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