Seniors Less Likely to Buy Longevity Insurance Despite Value, Study Finds

longevity insurance seniors

Many seniors are not buying longevity insurance – even though it has been shown to be valuable. Aging Americans are living longer, with life expectancy being much greater today than it was a few decades ago. There is a growing problem that aging adults are now outliving their pensions and that is where annuities come into play.

An annuity is an insurance contract that guarantees the investor an annual sum of money.  In order to boost annuity sales, the federal government established a new annuity known as longevity insurance.

The study, published in the Geneva Papers on Risk and Insurance—Issues and Practice journal, aimed to uncover those persons who would benefit the most from the new annuities, while helping financial advisors find these people and sell them products of highest benefits.

Longevity insurance annuities require an upfront payment in exchange for deferred monthly payouts. These payouts typically don’t begin until a person reaches between 80 and 85 years of age. Once they begin, they continue until the person dies. Due to the delay in beginning the longevity insurance payouts, these monthly amounts are much larger than typical annuities.

The researchers studied demographic data in order to identify the characteristics of those most likely to buy longevity insurance. The findings uncovered that consumers most likely to buy this type of insurance are those with higher levels of risk tolerance, younger women, and individuals with lesser home equity.

Lead author Michael Guillemette, an assistant professor of financial planning at the University of Missouri, explained, “Longevity insurance is designed to insure that older adults never run out of money. In many cases, it makes sense for healthy older adults to buy longevity insurance when they are approaching retirement. This insurance can help seniors with lower risk tolerance as they prefer greater certainty in advanced age.”

Identifying the kinds of consumers that buy and decline to buy the longevity insurance will help financial advisors convince the right persons who require such insurance to purchase it, all the while directing those who don’t need it to better options.