Companies have been coming to the market with a new type of insurance plan called “Longevity Insurance”. The plans are being offered by NY Life, Symetra, The Hartford and Met life. There will surely be a number more coming out with plans over the next 6 to 12 months.
The idea behind longevity insurance is that a person can put away money for a number of years (most plans are for people in their 50’s) with a guarantee that they can have lifetime income at a future date. Most of the plans currently available require that you wait at least 10 years to start income. Some of the plans will allow the income stream to pay out for a single persons lifetime while others offer a joint spouse option at a reduced payout.
This concept is not new and has actually been used by insurance companies for over 100 years. For the past 10 years, companies have been offering annuities with income riders that allow people to do the same thing. Put money away for a number of years with a guaranteed lifetime income payout at a future date. There are some variables to consider when comparing longevity insurance to a regular annuity with an income rider but there are two things that are the most important: How much will they pay at a future date and do they allow you to keep access to your investment.
Access to investment: Most income riders will pay out lifetime income without annuitizing the contract. In other words, they do not take the lump sum away once they start paying income. On the other hand, most of the Longevity plans annuitize the contract which takes the lump sum from the investor in return for income payments for life.
Payout: Here is the most important point. How much will the product payout as lifetime income at any future date. The Longevity products I reviewed payout out substantially less than the most competitive income riders. For example: If a 55 year old male put $100,000 in the Symetra longevity plan at age 55 they could get an income stream of $6,050 a year for life at age 60 or $8,483 a year for life at age 65. Compare that to the Great American income rider using the same person and same investment amount of $100,000. They would pay out $7,500 a year at age 60 and $11,000 a year at age 65. Substantially higher payouts.
At the end of the day, Longevity insurance is just a new way for companies to try to crack into the annuity market. The product looks and feel like an annuity with an income rider with a low payout. At this point, there is nothing unique or advantageous about “Longevity Insurance”.