X-Message-Number: 30198
From: "James Clement" <>
Subject: Longevity Insurance?
Date: Sat, 22 Dec 2007 17:05:52 -0800

Just came across this article - thought some of us might like to hear Rudi
Hoffman's comments on this:

http://www.bradenton.com/health/story/290410.html

Longevity Insurance: A good deal if you live long enough

DEAR SAVVY SENIOR: Can you tell me about a new financial product called
longevity insurance? With longevity running in my genes - dad lived to age
94 and mom's 92 and still going strong - I worry about outliving my money. -
Long Living Larry

DEAR LARRY: Outliving one's retirement savings is a financial nightmare that
haunts many retirees. That's why a handful of insurers have recently
introduced a new type of annuity that caters specifically to that fear.
Here's what you should know.

Longevity Insurance

Now you can actually buy insurance that pays you for living a long life.
It's called "longevity insurance," and like an annuity, it pays you income
for life, but only if and when you make it to a certain age. How does it
work? You give an insurance company a lump-sum of money when you retire (say
age 60 or 65), in return for monthly income starting at age 80 or 85.

Advantages

The advantage of choosing longevity insurance over an annuity is that the
payouts are much higher. For example, a 65-year-old man who puts $50,000
into a longevity policy can expect to receive around $3,400 per month (that
comes to $40,800 per year) starting at age 85. With a traditional income
annuity, he'd get only around $640 per month.

Why such a big difference? Because the insurance companies are betting you
won't be around to collect. National statistics show that a 65-year-old male
will live, on average, to 82, and a 65-year-old woman to 85. Another great
benefit with longevity insurance is it gives you the freedom to spend down
your nest egg, knowing you've locked up an income stream for your later
years.

Drawbacks

As tantalizing as those big payouts may be, longevity insurance has its
drawbacks. For starters, a basic longevity policy offers no escape hatch for
you to retrieve your money during the 20 years or so you're waiting for
benefits to start. And your heirs won't get death benefits if you die before
you begin to collect.
Recognizing that many people might balk at these limitations, insurers are
also offering add-ons to the basic policy that include a death benefit to be
paid to heirs, early payments for nursing home care, cash withdrawal options
and inflation protection. The downside, however, is that every piece you add
on reduces your monthly benefit.

When to buy

Most people purchase longevity insurance at or just prior to the time they
retire. Figure out how much of your essential expenses you can cover with
Social Security, pensions, and other forms of guaranteed income - and
consider buying coverage for the rest. But don't overdue it!

Experts recommend you use no more than 10 percent to 15 percent of your
assets to purchase a policy, and leave the rest in your portfolio to provide
income until it kicks in.

Also, when choosing a product, remember that you're buying income that will
not kick in for 20 years or more. So be sure to go with a company with a
good reputation and solid financials. Some major players offering this type
of insurance are MetLife, Hartford, Integrity and New York Life.

Alternatives

If you don't like the idea of longevity insurance, you could always invest
the money that you would spend on this type of insurance on your own and
come up with a similar result. If you took your $50,000 and invested it at
age 65, for example, assuming a conservative 6 percent growth per year, you
would end up with $160,000 in 20 years.

At age 85, you could then begin spending the money or use it to buy an
immediate annuity. An 85-year-old man who invested $160,000 in an immediate
annuity would get about $2,200 per month for the rest of his life. That's a
lot less than you'd receive with a longevity policy, but you'd have access
to the money for emergencies or to leave to your heirs.

James Clement, J.D., LL.M.

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