***Longevity Insurance

Want to make some money, and encourage yourself to stay healthy at the same time? Bet someone you will live to 100 (or older)!

250:1 odds. I'd love to take that bet. Ten years ago Englishman Alec Holden placed a £100 bet with his bookie that he would live to 100. He recently cashed in on that $200 bet and received $50,000.

You won't be able to get the 250:1 odds these days. Rupert Adams, spokesperson for the bookie, said, "When we started taking these bets, 100 years old seemed to be an almost mythical landmark and we were prepared to offer massive odds. But these age wagers are starting to cost us a fortune and from now on we are going to push out the age to 110."

But there is a relatively new way to win that kind of bet – longevity insurance.

Only a third of Americans say they would like to live to 100. Their reasons include fearing they will run out of money and be poor. Longevity insurance can help with that concern.

Personally, I dislike life insurance, as I hate betting against myself. You (or rather your survivors) only get the money if you die. Longevity insurance rewards you for living longer and helps make sure you have enough income starting at age 85. For example, let’s say a 65-year-old man pays $50,000 in after tax money for a longevity policy. At age 85, he starts collecting $3,614 a month ($43,368 a year) for the rest of his life.

If he dies before age 85, he and his heirs receive nothing. For women, the monthly payments would be somewhat lower because of a longer life expectancy. Of course, you can purchase the insurance before age 65 and receive even higher monthly premiums at 85.

For those 65 years old, life expectancy for American men (2004 data) was 82.1 years and women 85 years. Met Life, Hartford, and other insurance companies are betting that in most cases they won’t have to pay anything. That’s why they can pay high benefits to those who do live past 85.

You could take the same money and invest it in stocks or bonds. That would allow you to take money out in an emergency and to pass on money to heirs. If you get a 6% after tax return rate on your investments compounded over 20 years, you would start coming out ahead a shortly before your 90th birthday with the longevity insurance.

The primary advantage of the insurance is less conce
about outliving your money. It also might be out of reach in the event of a lawsuit or divorce. Unlike life insurance, you don’t need to qualify, you only need a birth certificate.

The biggest risk with longevity insurance is not living to 85 and collecting nothing. Also there is the risk is the insurance company could go out of business.

Another consideration is the likelihood of inflation. Whether you invest the money in an IRA or have longevity insurance, the money will probably have far less purchasing power in 20 years. At 4% inflation compounded annually, $1,000 in today’s money would be worth $456 in 20 years. In our previous example, the monthly payment would be equivalent to $1,648 in today’s dollars and each year the value would be a little less.

The US Census Bureau says the US had 75,000 centenarians in 2000 and will have 170,000 in 2010 and 1.2 million in 2050. With life expectancies likely to increase, purchasing longevity insurance in the future is likely to bring lower monthly benefits than are being offered now. If you believe you have a good shot at living to 100 or older, longevity insurance can be a good bet.