Longevity Insurance

Longevity insurance is a strategic financial tool designed to provide income in your later years, offering peace of mind and stability for your retirement. This type of insurance, also known as a deferred income annuity, helps ensure you won’t outlive your savings by providing a steady stream of income that begins at a set age, typically in your 80s.

Longevity Insurance

With the possibility of living longer, longevity insurance serves as a safeguard against the uncertainty of the future. It helps you maintain financial security and quality of life in your golden years.

How Does it work?

Longevity insurance, a type of deferred income annuity, offers a way to secure a consistent monthly income starting at a future date and is often chosen by new retirees. The income typically begins years after the purchase and continues until the beneficiary’s death. These policies can be tailored to individual needs. For instance, an individual policy might begin payments at age 85. And if the beneficiary passes away before then, there is no payout.

Options also exist for married couples to receive joint payouts for as long as either spouse is alive. Additionally, some annuities offer features like returning premiums to heirs if the policyholder dies early or adjusting payouts for inflation. Longevity insurance assures retirees who use some of their savings early in retirement that they will still have income in their later years.

However, this security often requires a substantial initial investment for the guaranteed future income. For example, a 65-year-old man might pay $100,000 to secure a yearly income of $35,562 starting at age 80. Though many retirees opt for an upfront payment, This policy also offers flexible payment options, such as monthly or annual installments. Despite its potential benefits, longevity insurance remains relatively unpopular, comprising less than 2% of total annuity sales.

This may be due to the long wait for payouts and the sizable initial investment required. However, these policies can be a valuable part of a retirement strategy if carefully considered. Given the customized nature of these contracts, determining exact costs can be complex. Online calculators can help illustrate different payment options and payout scenarios. Factoring in features such as the return of premium, inflation protection, and coverage for a spouse, which may impact costs and payouts.

Longevity Insurance Cost

Longevity insurance is a personalized contract, with costs depending on several factors like your age at purchase, gender, and the years before payouts start. Choices such as survivor benefits or ensuring a payout for beneficiaries if you pass away early also affect pricing.

FINRA notes that individual payouts may be higher than usual because some people who buy longevity insurance without a premium rider won’t receive any payout. Their premiums contribute to the funds available for beneficiaries who live much longer than expected. In essence, it’s a collective pool of money that benefits those who reach an advanced age.

Longevity Insurance Pros and Cons

This policy has its benefits as well as its drawbacks. Check out the pros and cons below:

  • It protects your savings from market risk.
  • Help fund a health care need like assisted living.
  • It gives you peace of mind that you won’t outlive your savings.
  • Your spouse can be added to the policy.
  • Offers some tax advantages.
  • Your loved ones may be able to recover the premiums paid if you die during or before the payout period.


  • Expenses and fees can be very high.
  • It will reduce the amount of money available to your family.
  • The company you purchase from may determine if you will get the promised payout.
  • It can be complex.
  • There may be surrender fees if you choose to end the contract or opportunity costs if you choose to keep the money in the annuity.

Do I need Longevity Insurance?

This policy may not be necessary for everyone. You may not need it if your Social Security, pension, or retirement funds comfortably cover your expenses. Or if you expect to live less than the payout period, If the cost of the policy would strain your budget or deplete your emergency fund, you might want to reconsider.

According to a 2022 Morningstar study, those with higher income sources relative to expenses may not benefit much from longevity insurance. While lower-income individuals might find it more useful, It’s essential to consult a financial advisor to understand your unique situation.

On the other hand, longevity insurance might be worth considering if you’re concerned about outliving your savings. Or are you hesitant to spend your retirement funds out of fear of future expenses? It can also be appealing to those seeking financial stability through regular payments and wanting to avoid the risks of market fluctuations.