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A closer look at longevity insurance

Created date

April 26th, 2011

Between medical advances and healthier lifestyles, it s no secret that average life expectancies are on the rise. Many people now live well into their 90s and plenty celebrate 100th birthdays. However, if you were planning to fund a retirement of only 10 to 15 years, you run the risk of outliving your savings. Now insurance policies are going all the way out to 121 years of age, says Larry Ynman, a Texas wealth manager and president of the San Antonio branch of the National Association of Insurers. We re living longer, so we need to plan properly.

Get paid for your longevity

Some insurance companies now offer a potential solution called longevity insurance. You make a lump sum investment at age 65, for example, and then when you turn 85, you receive a guaranteed payout every month for the rest of your life. Longevity insurance isn t a totally new product. Steve Weisman, a Massachusetts lawyer and author ofThe Truth About Buying Annuities, says longevity insurance is essentially a variation on a deferred fixed annuity. Clearly, longevity insurance policies don t make sense for every investor. But Weisman says if your health and family history indicate you will live well into your 80s or beyond, then a longevity policy could be a useful part of your overall retirement savings plan. People who can t qualify for long-term care insurance because of preexisting health problems may also want to consider longevity insurance because payouts can be used to pay for medical costs, Weisman says. Consumers should note, however, that there are some key differences between traditional deferred fixed annuities and longevity insurance. For starters, you cannot begin collecting longevity insurance before age 85 without incurring significant penalties. And, Weisman says, longevity insurance policies typically do not include a benefit that allows you to pass on proceeds to your heirs. You can add bells and whistles to policies, like a death benefit, but then you reduce the payout you receive each month, he says.

Read the fine print

Like any investment, there are risks associated with longevity insurance. Weisman says annuity products like longevity insurance have gotten a bad name at times because some unethical companies have sold older adults annuities that result in a very high surrender fee if the money is withdrawn before ten years or more. Products with that kind of time frame are usually inappropriate for investors in their late 70s or 80s. Annuities are a legitimate product, Weisman says. But every year they turn up on some list of Top 10 Scams because of [some companies charging] hefty surrender fees. That doesn t mean you have to avoid annuity products like longevity insurance if you determine that they could be a valuable component of your investment portfolio. Before you sign on the dotted line, make sure you read the fine print and get satisfactory answers to your questions. Most importantly, Massachusetts wealth advisor Jay Butler advises people to choose a reputable insurance company. Look at the insurance company s ratings from Standard & Poor s, Moody s Investor Services, and A.M. Best Company, Butler says. Make certain that the company is viable and is going to be around as long as you are.