Longevity insurance, insuring longevity, also known as a longevity
annuity, Qualifying Longevity Annuity Contract or QLAC and deferred
income annuity, is an annuity contract designed to provide to the
policyholder payments for life starting at a pre-established future
age, e.g., 85, and purchased many years before reaching that
age.Longevity annuities are like "reverse life insurance", meaning
premium dollars are collected by the life insurance company by its
policy holders to pay income when a policy holder lives a long life,
instead of collecting premium dollars and paying a death claim on a
policy holder's short life in ordinary life insurance. Longevity
annuities use mortality credits to pool money and pay out the
remaining policy holders' claims, this being living a long life.The
term "longevity insurance" comes from this type of annuity being
insurance against unusually long life. It may seem odd to insure
against an event that most people would welcome. However, living a
very long time would strain many people's financial resources, just as
a fire which destroys their house would strain many people's finances
if they didn't have fire insurance. The logic that makes fire
insurance a prevalent means for coping with the financial risk of
house fires would seem to argue for greater use of longevity insurance
for retirement planning: Few people will live to a very old age, so it
doesn't make sense for everyone to try to cover that possibility with
savings and investments. (The same type of reasoning applies to house
insurance: because few people will experience house fires, therefore
it is not realistic to expect everyone to save and invest specifically
for purposes of house replacement.) Longevity insurance is not
designed for the early retirement years, so it is not intended as a
complete retirement plan by itself.Summer of 2014, the IRS and
Treasury Department finalized the creation of qualifying longevity
annuity contracts, or QLACs, under the required minimum distribution
(RMD) rules of Internal Revenue Code section 401(a)(9). Providing an
exception to the RMD rules allowing an IRA owner to use the lesser of
25% of account owners total IRA account balance or $125,000 to
deferred income annuity or longevity annuity that provides no cash
value and promises income payments no later than age 85. This amount
was subject to inflation adjustment in the coming years. Starting in
January 2018 the QLAC limit was raised to $130,000.
annuity, Qualifying Longevity Annuity Contract or QLAC and deferred
income annuity, is an annuity contract designed to provide to the
policyholder payments for life starting at a pre-established future
age, e.g., 85, and purchased many years before reaching that
age.Longevity annuities are like "reverse life insurance", meaning
premium dollars are collected by the life insurance company by its
policy holders to pay income when a policy holder lives a long life,
instead of collecting premium dollars and paying a death claim on a
policy holder's short life in ordinary life insurance. Longevity
annuities use mortality credits to pool money and pay out the
remaining policy holders' claims, this being living a long life.The
term "longevity insurance" comes from this type of annuity being
insurance against unusually long life. It may seem odd to insure
against an event that most people would welcome. However, living a
very long time would strain many people's financial resources, just as
a fire which destroys their house would strain many people's finances
if they didn't have fire insurance. The logic that makes fire
insurance a prevalent means for coping with the financial risk of
house fires would seem to argue for greater use of longevity insurance
for retirement planning: Few people will live to a very old age, so it
doesn't make sense for everyone to try to cover that possibility with
savings and investments. (The same type of reasoning applies to house
insurance: because few people will experience house fires, therefore
it is not realistic to expect everyone to save and invest specifically
for purposes of house replacement.) Longevity insurance is not
designed for the early retirement years, so it is not intended as a
complete retirement plan by itself.Summer of 2014, the IRS and
Treasury Department finalized the creation of qualifying longevity
annuity contracts, or QLACs, under the required minimum distribution
(RMD) rules of Internal Revenue Code section 401(a)(9). Providing an
exception to the RMD rules allowing an IRA owner to use the lesser of
25% of account owners total IRA account balance or $125,000 to
deferred income annuity or longevity annuity that provides no cash
value and promises income payments no later than age 85. This amount
was subject to inflation adjustment in the coming years. Starting in
January 2018 the QLAC limit was raised to $130,000.
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