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Longevity insurance

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SUBTOPIC: General Description of Longevity Insurance in the United States
Longevity annuities are like reverse life insurance
– Premium dollars are collected to pay income when a policy holder lives a long life
– Mortality credits are used to pool money and pay out claims
Longevity insurance is designed to provide income for life starting at a future age
– It is not intended as a complete retirement plan by itself

SUBTOPIC: IRS and Treasury Department Regulations
– Qualifying Longevity Annuity Contracts (QLACs) were finalized in 2014
– QLACs provide an exception to the Required Minimum Distribution rules
– IRA owners can use a portion of their account balance to purchase QLACs
– The QLAC limit was raised to $130,000 in January 2018
– QLACs offer high returns compared to prevailing interest rates

SUBTOPIC: Example of Longevity Insurance Investment
– A person could pay $20,000 at age 60 for an annuity paying $11,803/year at 85
– If the person lived to 95, they would receive $118,030 on their investment
– The return on investment is higher than prevailing interest rates on government bonds
– Optional features may modify the death benefit or payment start date
– The benefit is generally paid as a guaranteed income stream for life

SUBTOPIC: Use of Longevity Insurance Products
– Main use is to help retirees stretch their retirement resources for a long life
– Insurance companies pay high returns due to the likelihood of not all buyers living long
– Mortality credits play a key role in providing high returns
– Provides a way to cover the financial risk of living to a very old age
– Offers a guaranteed income stream for life to policyholders

SUBTOPIC: References
– Milevsky, Moshe A. introduced Advanced Life Delayed Annuities
– Scott, Jason S. discussed the Longevity Annuity in the Financial Analysts Journal
– Blanchett, David’s paper on Allocating to a Deferred Income Annuity in a Defined Contribution Plan
– Kitces, Michael E. explained the Longevity Annuity and its role in retirement income
– Signorella, Joseph provided information on QLAC rates

Longevity insurance, describes the process of mitigating against longevity risk. In the United States, such risk mitigation is often achieved using a longevity annuity or Tontine[dubious ], qualifying longevity annuity contract (QLAC), deferred income annuity, an annuity contract designed to provide a regular income for life starting at a pre-established future age, e.g. 85[dubious ], and purchased many years before reaching that age.

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