Longevity Insurance

Longevity Insurance is a way to protect against the risks of living too long. You give money to an insurance company in exchange for an immediately activated stream of income for your lifetime. New York Life has recently come up with an updated version of longevity insurance where they defer the stream of income.

There are two ways this deferred method can be used. First, you can prepay for an annuity in advance and it will be cheaper because you might die before you begin to collect. Also, the insurance company will be investing your money over a longer period of time.  Second, you can use it strictly as an insurance policy. You wouldn’t begin to collect the money until a date far in the future, so if you live past your life expectancy, you will have enough money to cover you. This allows you to spend your retirement more freely because you know that your insurance will provide for you later. Again, though, there is a risk that you will die before you see any of your insurance money.

Other risks involved with using these annuities include: giving up a lot of money up front and possibly dying before you can collect, inflation considerations, and the future financial stability of the insurance company.

See Tara Siegel Bernard, Longevity Insurance: Buying Down the Risks of Living Too Long, The New York Times, June 28, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.