How does longevity insurance work?

Longevity insurance provides guaranteed income starting at some point in the future (typically 2-40 years from now) and continuing for life. You might see longevity insurance referred to by other names, including longevity annuities, Deferred Income Annuities (DIAs), or advanced life deferred annuities. There’s also a specific kind of longevity insurance called a Qualified Longevity Annuity Contract (QLAC). But they all serve the same basic function: protection from outliving your savings.

Typically insurance is meant to protect you from something bad happening. But in the case of longevity insurance, it’s a little different: you’re allocating your assets to something that protects you from outliving your money because you live longer than expected. In general, that’s a good thing, but you just have to make sure you’re protected financially. From the insurance company’s perspective, they are simply pooling a different type of risk: longevity risk. The extra income they send to those who live longer than expected comes from the income they didn’t have to pay to those who passed away prematurely.

Longevity insurance isn’t a new concept. In fact, there are two types of longevity insurance that you’re probably very familiar with — Social Security and pensions. Both give you steady payments every month that aren’t affected by what happens in the market and those payments continue for as long as you are alive. But, the benefit offered is not up to you.

Through Deferred Income Annuities, you can purchase longevity insurance for yourself. In exchange for a lump-sum premium paid to an insurance company, you’ll receive a pre-determined and guaranteed paycheck that continues for life. You can buy a DIA using your 401(k), IRA, or personal savings.

Here’s what it looks like:

Income Annuity (DIA) and how does it work? What is a longevity annuity? What is longevity insurance?

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Head to the DIA Guide to learn more about the product, how it works, and whether it makes sense for you.