Nested Interest

Longevity insurance is a type of immediate annuity that provides fixed and defined payments, similar to a fixed immediate annuity, but does not start making payments to the beneficiary until the annuitant reaches a specified age, often 80 or 85; benefits payments then continue for the remaining lifetime of the annuitant.

Referring to this product as an “immediate annuity” is a bit of a misnomer, as payments don’t commence “immediately”.  In fact, they are often referred to as a “deferred life annuity”.

Because these products do not start paying benefits for a number of years, they are much less expensive than a comparable fixed immediate annuity.  This product can work effectively alongside a systematic withdrawal strategy, where income is first received by drawing down savings up until the age at which the benefits from the longevity insurance starts – so, the longevity insurance provides protection against longevity risk that would otherwise not be in place under a pure systematic withdrawal strategy.