I wouldn't buy an annuity. But....

[Maurice]

I do like the idea of buying insurance for 'longevity risk'.


Is there a pure-play product out there?


On the other side of the coin ('mortality risk') the insurers have various kinds of products - the whole life product which bundles investments and mortality-risk insurance and a boat load of fees. But they also have a pure-play mortality-risk product - namely term life insurance.

But on the longevity-risk side all they have is the combo investment/insurance/lots-of-fees product. Or is there some pure-play product out there that I'm just not aware of?

 

[Independent]

Maybe it would help if you defined the product you're looking for. When would you put money in? When would you take money out? What would be guaranteed? What would be driven by markets?

Maybe this will generate some ideas:

"Longevity insurance" provides guaranteed income typically starting after you turn 85, in exchange for an initial investment made some 20 years earlier. Payouts are fixed and cover you and your spouse for as long as you live. With some variations of this product, you can also opt for a death benefit, which guarantees that your account will hold a certain value that can be paid out to your heirs if you die before the payout age.

Extend Your Retirement Savings (Insurance: Personal Finance) at SmartMoney.com

I don't think you would want the death benefit, but that sounds like an option. This product isn't inflation adjusted, but a CPI adjusted version is theoretically possible.

 

[brewer12345]

A SPIA, whether fixed or inflation-adjusted, is about it as far as pure longevity insurance goes.

 

[Maurice]

Maybe it would help if you defined the product you're looking for. When would you put money in? When would you take money out? What would be guaranteed? What would be driven by markets?

Nothing bundled - not an investment that one could take money out of. A pure longevity risk bet. Say for example I give them a few thousand dollars today and they give me 100k on my 90th birthday, if I'm alive. If I'm not they keep it. This would be a pure statistical play on their end using basic mortality tables. From the customer end it would be a cheap way to insure against surviving past my savings. (call it FIRE insurance )

 

[REWahoo]

Say for example I give them a few thousand dollars today and they give me 100k on my 90th birthday, if I'm alive.

So what would you do with that $100k at age 90? Pay someone to puree your T-bone so you could eat it?

 

[haha]

So what would you do with that $100k at age 90? Pay someone to puree your T-bone so you could eat it?

Hookers, like those old boys in Florida.

Ha

 

[Maurice]

I like Ha's idea better...


Seriously, I just pulled the number out of the air, but you gotta figure 50 years from now (when I turn 90) 100k won't buy much.

The broader point is that a 'pure play' product could have a payoff much greater than the equivalent of investing the premium, since most people wouldn't live to see the benefit. The insurance co would (presumably) collect multiple premia for every eventual payout (like term life).

 

[ejman]

Interesting idea. I been wondering from the point of view of the issuing insurance company how do you factor in the possibility of a magic "potion" that might extend life to an average of say 200 years becoming available 40 years from now? I guess that's when bankrupcy comes to play

 

[Maurice]

ejman - that occurred to me, I guess you'd have to buy a credit default swap on the insurer too.


In all seriousness, don't they have that problem today with their annuities? They do already insure longevity risk, after all, they just bundle it with poor investment products and high fees.

 

[mattburk]

Interesting idea. I been wondering from the point of view of the issuing insurance company how do you factor in the possibility of a magic "potion" that might extend life to an average of say 200 years becoming available 40 years from now? I guess that's when bankrupcy comes to play

Life insurance companies base their numbers on actuarial numbers that are extreamly accurate on picking the average life span of clients. Old life insurance policies were based on a 100 year life span, new ones are now switching to 120 years. As life spans increase the life insurance companies will adjust plans to insure the longevity of the company.

 

[cute fuzzy bunny]

I'm just surprised that there are hookers in Florida who will puree your t-bone for you.

Which sounds pretty naughty if you ask me.

 

[Independent]

Nothing bundled - not an investment that one could take money out of. A pure longevity risk bet. Say for example I give them a few thousand dollars today and they give me 100k on my 90th birthday, if I'm alive. If I'm not they keep it. This would be a pure statistical play on their end using basic mortality tables. From the customer end it would be a cheap way to insure against surviving past my savings. (call it FIRE insurance )

That sounds pretty much like the MetLife product. Except, instead of getting a lump sum you get monthly checks.

I'll agree with you, this sounds more appealing than a traditional SPIA. I might want the insurer to cover the contingency that I may live to an unusually high age. I don't want the insurer to invest the money that I'm going to be spending in the next 15-20 years. This product allows me to split those two activities.

But, I think I'd only be interested in the insurance if I thought that there were a good chance of running out of money if I lived a long time, or if I were really focused on spending everything I could while I was alive.

 

[clifp]

Actually, I'd be interesting in product that pays say $1000/month (inflation adjusted) from age 85 on. That would protect from various market clamities and probably just as important from the Anna Nicole Smiths/annuity salesman who take all my money when I become senile in my 80s.

 

[Moemg]

I've seen the hookers from that article and I think after employing one you'd end up with $99,990 .

 

[cute fuzzy bunny]

Since I still (as far as I know) have my wifes approval to run off with Anna Nicole Smith's granddaughter when I'm 90, if I'm a billionaire by then...I think i'll be okay with that whole thing about having my money taken when i'm in my senile 80's.

Clif - I think what you're looking for is to simply defer social security until you're 70. You'd hit break-even around 85 and be getting around an extra $1000 a month cpi adjusted. Thats if they're still doing CPI adjustments by then, SS is still around, and CPI is better than your inflation rate.

Probably better odds than getting some insurance company to pay up on a large settlement, if they're still around, in 30-40 years.

 

[Nords]

Since I still (as far as I know) have my wifes approval to run off with Anna Nicole Smith's granddaughter when I'm 90, if I'm a billionaire by then...I think i'll be okay with that whole thing about having my money taken when i'm in my senile 80's.

Does your spouse realize that, if we're still using American dollars when you're 90, everyone will be a billionaire then?

 

[cute fuzzy bunny]

I think her unspoken plan is to keep spending money to keep us just a dollar under a billion. Pack of gum a day at $26.00 per pack in 2058 dollars oughta do it.