Is Longevity Insurance Necessary for a Comfortable Retirement?

Ross Quade | Insurance | 1 Sep, 2014 | No Comments

It’s recommended that you start saving and putting together plans for your retirement no matter how old you are, and most people know this. However, it can be a little confusing when it comes to knowing how to deal with a retirement in which you live an exceptionally long and healthy life. If this is the case then you may not be investing and saving enough money in order to give you and your family a comfortable lifestyle well into your late 80s if not older. Although it can be uncomfortable to think about how long you and your spouse will be walking on this planet, it can be extremely important in order to ensure you are fully prepared for retirement. This is where longevity insurance comes in.

The Low Down on Longevity Insurance

Longevity insurance is the coined term for an advanced life deferred-income annuity. It is basically where someone pays for their future income stream before they turn 65, and will then receive payments once they hit 85. Although this type of insurance use to not be widely available, new tax rules have recently gone through that allow up to 25% of 401(k) or IRA’s to go towards purchasing a longevity insurance policy. It is the goal of this type of insurance policy to get future retirees to safeguard their steady income source in the likelihood that they advance into old age. As one article put it from the New York Times, the idea is to purchase protection against any risk, in particular the risk of outliving your bank account funds.

How Does it Work?

Buying longevity insurance is usually quite a straightforward process. In most cases, people will make a substantial payment while they are between the ages of 50 and 70, however they can also make a payment much earlier, which is to their advantage. This is due to the fact that the older you are when you purchase the life insurance policy, the lower the amount you will receive in the form of annual payments when you turn 85.

Taking Care of Your Family Into Old Age

Longevity insurance has many advantages; the biggest being that it will ensure you have a stable income into old age. This cannot only be comforting, but also can even save you and your spouse’s a lot of unnecessary stress. Additionally, you may not need to take out a long-term care insurance policy if you have longevity insurance. Longevity insurance also means that you can relax about spending money when you retire, as you won’t have to be worried about becoming bankrupt later down the road.

The Downside

In most cases you will lose the longevity insurance if you pass away before the age of 85, although there are some policies that will pass down the benefit to an heir. Additionally, the amount that you pay for your insurance policy is money that you will be taking out of your retirement portfolio, which makes it unavailable to use in the case that you need money for an emergency. Lastly, there is always the chance that your policy’s insurance company will stop doing business before you can use it.

The Bottom Line

In the end it is up to you as to whether or not you can benefit from a longevity insurance policy, however looking at the advantages of owning this type of policy will typically indicate that such a policy will be of great benefit to you and your family. This is especially the case if you have not built up a large retirement fund already and will not be receiving a pension.

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