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Longevity Insurance Opportunities and Concept

Longevity Insurance Opportunities and Concept. Longevity Insurance Presentation Menu Click on links to view:. What is Longevity Insurance? Is Longevity Insurance Valuable? Details of the full longevity benefit sales story: Retirees Bob & Janet try to self-insure

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Longevity Insurance Opportunities and Concept

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  1. Longevity InsuranceOpportunities and Concept

  2. Longevity Insurance Presentation MenuClick on links to view: What is Longevity Insurance? Is Longevity Insurance Valuable? Details of the full longevity benefit sales story: Retirees Bob & Janet try to self-insure What does longevity insurance (LI) do for Bob and Janet? What if Bob and Janet can’t afford to retire? Bob Jr. needs life insurance. Why buy LI at the same time? Summary of distribution opportunities

  3. The Basic Concept ofLongevity InsuranceWhat is it? Click to Return to Presentation Menu Or click to continue

  4. $500K $400K $300K $200K Single Premium $100K $31,488 per year… guaranteed for life Age 65 70 75 80 85 90 95 100 Traditional Life Income Annuity (SPIA)* • No moving parts! • Just a fully guaranteed life income • No fund, no interest, no death benefit • But NO CASH LEFT IN BANK! (*) Assume a couple both age 65 in excellent health who have saved $500K – typical rates

  5. $500K $400K $300K $200K Single Premium $100K $31,488 per year… guaranteed for life Age 65 70 75 80 85 90 95 100 Add a 20 year Certain Period * • Adds a death benefit • Loans can add some liquidity • BUT $$$ COST INCREASES. • More complex 20 years certain (*) Assume a couple both age 65 in excellent health who have saved $500K – typical rates

  6. $500K $400K Single Premium $300K $200K $100K $31,488 per year for life Age 65 70 75 80 85 90 95 100 Longevity Insurance * • Get rid of unnecessary expensive benefits. • Just cover risk of outliving assets. • Premium $ goes way down. • Manage your own normal retirement Use savings for income (*) Assume a couple both age 65 in excellent health who have saved $500K – typical rates

  7. Standard Nonforfeiture Law for Annuities Does Not Require Cash Values “(1) (b) If a contract provides for a lump sum settlement at maturity, or at any other time, that upon surrender of the contract at or prior to the commencement of any annuity payments, the company will pay in lieu of any paid-up annuity benefit a cash surrender benefit of such amount as is specified in subsections (3), (4), (6) and (8)…”

  8. But Nothing if I Die Before 85?How is Longevity Insurance Valuable? Click to Return to Presentation Menu Or click to continue

  9. Whole Life Insurance Premiums 100% Chance of Receiving Benefits (**) But Expensive Consider Popularity of Term Life Insurance Mortality Costs Per $1000 (*) 50% of 75-80 Mortality – A run of the mill life insurance mortality assumption (**) Ignoring any lapses

  10. Consider Popularity of Term Life Insurance 20 Year Term Life Only 8% Chance of Receiving a Benefit (**) But Covers Most Important Need At very low cost Mortality Costs Per $1000 (*) 50% of 75-80 Mortality – A run of the mill life insurance mortality assumption (**) Ignoring any lapses

  11. Compared to Longevity Income Benefit 85% chance of receiving benefits (*) Income Costs Per $1000 Longevity Benefits (*) Assume a couple both age 65 in excellent health who have saved $500K – typical rates

  12. Compare Probability of Insurable Events? • Collecting on 20 year term insurance ~ 8.0% • Your home being destroyed by a fire during your life ~ 0.2% • Your car being stolen over a 40 year period ~ 20% • At least one of healthy age 65 couple living beyond age 85 ~ 85%

  13. Benefits of Combining Longevity and Life Insurance Comparison of Present Value of Claims Mortality Experience 75% 100% 150% 200% $48K Longevity Income 27.0K (136%) 19.9K 11.4K (57%) 6.8K (34%) $100K 20 yr term DB 16.0K (75%) 21.2K 31.3K (148%) 41.0K (193%) Sum of Present Values 43.0K (5%) 41.1K 42.7K (4%) 47.8K (16%) Assume a male age 45 who purchases $48K annual longevity insurance that starts at age 85 and a 20 year term policy that ends at age 65. 100% represents a typical longevity benefit mortality assumption

  14. The Longevity Sales Story Click to Return to Presentation Menu

  15. Bob and Janet’sSelf InsuranceOptions Click to Return to Presentation Menu Or click to continue

  16. Meet Retirees Bob and Janet • Bob and Janet are both 65 years old • They are married and in excellent health • They have saved $500,000 for retirement • They would like to retire now Retirement How much do they have to live on?

  17. $24,400 per year(*) Interest $500K What if they try to self-insure? Option 1: They could try to live off interest. (*) Annual income assuming 5% interest and not spending $500K principle. All annual incomes in this presentation are assumed to be paid monthly.

  18. Can’t Bob and Janet earn more than 5%? The S&P 500 did earn about 8% interest over the last 10 years. But the S&P alsoLOST 37.8%between Aug ‘00 and Aug ’02 Drawing 8% over those 2 years would have cut their savings in half! That’s a big risk! Financial experts recommend not drawing more than 4 to 5%

  19. $39,000 per year(*) Interest and Principle $500K Bob and Janet could dip into their savings Option 2: Draw money from savings plus interest BUT…. (*) Savings would last until age 85, assuming 5% annual interest.

  20. Self-Insurance What happens 20 years later…?

  21. Self-Insurance What happens 20 years later…? There is an 85% probability that one of them will live to age 85 – AND THEY ARE BROKE! Can they afford to take that risk?

  22. Self-Insurance What if they draw $34,500 per year which will last to age 90? What happens 25 years later…?

  23. Self-Insurance What happens 25 years later…? There is a69%probability that one of them will live to age 90 – AND THEY AREBROKE! Can they afford to take that risk?

  24. Self-Insurance What if they draw $31,700 per year which will last to age 95? What happens 30 years later…?

  25. Self-Insurance What happens 30 years later…? STILL a45%probability that one of them will live to age 95 – AND THEY AREBROKE! Can they afford even to take that risk?

  26. Summarizing Bob and Janet’s Self-Insured Options Annual IncomeConsequences $24,400 per year Lasts for life. Keep your $500K $39,000 per year 85% chance of going broke at age 85 $34,500 per year 69% chance of going broke at age 90 $31,700 per year 45% chance of going broke at age 95 Longevity Insurance can eliminate these risks…

  27. Bob and Janet’sLongevity InsuranceOptions Click to Return to Presentation Menu Or click to continue

  28. Longevity Insurance Options Option 1: Single Premium Immediate Annuities $33,800 per year of guaranteed income as long as Bob or Janet live! The Downside?

  29. $500,000 Bank $0.00 Single Premium Immediate Annuity Bob and Janet fork over the entire $500K… They have zero left in the bank! $33,800 per year… guaranteed for life Age 65 70 75 80 85 90 95 100 Longevity Insurance Options The Downside?

  30. Longevity Insurance Options Option 2: Longevity Insurance Can correct that downside! $33,000 per year Guaranteed as long as Bob or Janet live! Here’s the kicker…It only costs$80K How does that work?

  31. Longevity Insurance Options $500,000 $420,000 $80,000 Bank Longevity Insurance $420K $33,000 per year till 85 $33,000 per year… for life Age 65 70 75 80 85 90 95 100 Bob and Janet have $420K in the bank to provide $33,000 to age 85! Then only $80K buys $33,000 for life starting at age 85!

  32. Longevity Insurance Options Option 3: Maximize Longevity Insurance Income $34,500of yearly income Guaranteed as long as either lives! Let’s see how that works…

  33. $500,000 $180,000 $320,000 Bank Longevity Insurance $180K $34,500 per year… guaranteed for life $34,500 Age 65 70 75 80 85 90 95 100 Longevity Insurance Bob and Janet have $180K in the bank to provide $34,500 to age 71! $34,500 for life kicks in at age 71!

  34. Comparing Bob and Janet’s Options Self insurance:Consequences: $24,400 per year Lasts for life. Keep your $500K $39,000 per year Go broke at 85 (85% chance) $34,500 per year Go broke at 90 (69% chance) $31,700 per year Go broke at 95 (45% chance) Longevity Insurance:Consequences: $33,800 per year Lasts for life, but spend entire $500K $33,000 per year Lasts for life. Keep $420K to manage to 85 $34,500 per year Lasts for life. Keep $180K to manage to 71 How do these compare over a life time?

  35. After paying a premium for longevity insurance Let’s compare Bob and Janet’s options over a lifetime… Cash in the bank at 65… Self-Insured Alternatives Longevity Insurance Alternatives

  36. Best income choice if Bob and Janet knew they were going to die at 85 Let’s compare Bob and Janet’s options over a lifetime… Life income thru age 85… Self-Insured Alternatives Longevity Insurance Alternatives

  37. By age 90, longevity insurance provides BOTH the best income AND the security they cannot outlive! Let’s compare Bob and Janet’s options over a lifetime… Life income thru age 90… Self-Insured Alternatives Longevity Insurance Alternatives

  38. $1 million of lifetime income by 95 Let’s compare Bob and Janet’s options over a lifetime… Life income thru age 95… Self-Insured Alternatives Longevity Insurance Alternatives

  39. Guaranteed to keep going! No matter how long they live! Let’s compare Bob and Janet’s options over a lifetime… Life income thru age 100… Self-Insured Alternatives Longevity Insurance Alternatives

  40. What if Bob and Janet Need More Income?Deferred Retirement Options Click to Return to Presentation Menu Or click to continue

  41. What if $34,000 a Year Is Not Enough? Some of Bob and Janet’s options: Lower standard of living? Reverse mortgage? Live off kids? Life of crime? Retire Later? Let’s look at how Longevity Insurance can help Bob and Janet achieve their goals!

  42. Let’s say Bob and Janet decide they need … $50K per year to retire They know that $500K is not enough at age 65. Deferred Retirement Options • But with an Longevity Insurance they can… • Retire sooner and… • Guarantee a future retirement date!

  43. $500,000 $37,000 $463,000 Bank Flex Income Annuity $50,000 per year… guaranteed for life $37K Age 65 70 75 80 85 90 95 100 Planning a Later Retirement $463K will buy… $50K guaranteed incomestarting at age 70 Leaving $37K in the bank With the long term taken care of, now Bob and Janet just need to save enough to pay to age 70!

  44. Bank • Save nothing – Retire just before age 70 • Save $74 per month to retire at age 69 • Save $1,355 per month to retire at age 68 Add savings $37K $50,000 per year from savings $50,000 per year… guaranteed for life Age 65 70 75 80 85 90 95 100 Planning a Later Retirement So Bob and Janet now know exactly when they can retire based on how much they can save!

  45. Bank • Save nothing – Retire just before age 71 • Save $492 per month to retire at age 70 • Save $1,522 per month to retire at age 69 Add savings $392K $50,000 per year from savings Age 65 70 75 80 85 90 95 100 Planning a Later Retirement Or maybe they want to retain more of their assets. $108K will lock in $50K of income starting at age 85. Then… $50,000 per year… guaranteed for life Sounds like a (retirement) plan!

  46. Protecting Against Two of Life’s RisksDying Too Soon…Or Living Too Long! Click to Return to Presentation Menu Or click to continue

  47. Longevity Insurance pays off only if you live a long life Term Life Insurance protects your family only if you die too soon. Risk of Dying Too Soon Risk of Living Too Long Age 35 45 55 65 75 85 95 105 Why Buy Life Insurance and Longevity Insurance at the Same Time? Term Life Insurance with Longevity Insurance Rider By protecting against both risks at the same time you can save money!

  48. Let’s Meet 45 year old Bob Jr. Bob and Janet’s son needs to save for retirement too. He also needs life insuranceto protect his family! Let’s see how Bob can benefit from Longevity Insurance

  49. Bob Jr.’s Benefits Say Bob Jr. buys a 20 year term life insurance policy. A $1,000 per year Longevity Insurance rider could buy: $2,300 per year income(*) starting at age 65 - or - $12,000 per year income(*) starting at age 85 (*) So long as Bob Jr. or his spouse (also 45) live Let’s see how the Longevity Insurance enhances Bob Jr’s life insurance benefits if he lives a long time!

  50. A typical Return of Premium Rider might pay $40K in benefits Bob Jr pays $20K LI premium over 20 years $1,000 20 YEAR Longevity Rider at Age 45 At age 65… 350,000 315,000 280,000 245,000 210,000 175,000 140,000 105,000 70,000 35,000 - LI Rider Return of Premium Life Income Life Income Premium Starting at 65 Starting at 85

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