When it comes to life expectancy, there’s good news and bad.
The good news is that Americans are living longer, healthier lives than ever before. The bad news is that the more years you live, the more money you need. It’s still a good trade though, especially if you’re prudent in the earlier years, saving for a long retirement.
But, since many of us may not have expected such longevity or perhaps simply were unable to save as much as we might have liked, specialty insurance policies that can help make up the shortfall are starting to become popular. It’s interesting because most insurance is taken against the risk of bad things happening, but longevity insurance provides coverage in the event something good happens – you live to a ripe old age!
It’s really a kind of a delayed annuity, where you pay a single premium, usually at age 65, and, if you’re blessed to live another 20 years, you start to receive an indefinite monthly payment. Obviously, if you don’t reach age 85, there’s no payout, although there is a more flexible type of policy which does offer death benefits.
With the simple, high income payout, for instance, a policy that costs, say, $50,000 at age 65, might produce a monthly income of around $3,500 for a man or $3,000 for a woman, from age 85 on. If you cancel at any point before 85, you won’t get your premium back.
With the more flexible policy, the same premium might produce around half that amount but you can start receiving it as soon as a couple of years after taking out the coverage, or get all your premiums refunded at any time before you reach 85 if you haven’t taken any income.
These are just examples, of course. Actual premiums and payouts vary according to the individual and insurer. However, just to be clear, your chances of reaching age 85 are roughly, on average, 50/50. Your chances of reaching 90 are significantly lower – which explains why, relatively speaking, the premium is so low.
But what you are buying is a high degree of financial certainty for a time of your life when you might face high medical bills or your savings might have been eroded by inflation.
Naturally, before you make a decision, you may want to seek medical advice, as well as reviewing your financial situation with a professional. If you’d like to learn more about this type of product, our licensed advisors are here to help. Contact us to set up a comprehensive review of your options.