This would encourage your loved ones to keep you alive until you reach that age.
In life insurance, you pay the company a small periodic payment in exchange for a large lump sum payment if you die while the coverage is in force. If you die after paying just one premium, you win! If you live so long that you paid more in premium than the lump sum, you lose!
With an annuity, you pay the company a large lump sum in exchange for a small periodic payment for the rest of your life. If you die after receiving just one payment, you lose! If you live so long that the company pays you more than your initial lump sum payment, you win!
Its basically 5% Annually... to which stock-people say "why not put into a dividend earning fund" and analysis paralysis kicks in...
But their starting income is less than half the income from the non-increasing annuity, presumably because of difficulty/expense in hedging inflation risk.
Annuities sound like the actual gambling, lol.
https://en.wikipedia.org/wiki/Life_annuity
and
In a tontine, those dying earlier generate excess income for the retirees. It's explained here: https://tontine.com/explainer
Typically a tontine would have lower payments in early years with much faster acceleration later on compared to an annuity. That means that healthier people would generally do better with a tontine than an annuity, and less healthy people would do better with an annuity. It also means that the nominal amount of payments from a tontine is higher than those from an equivalently priced annuity, but that difference is entirely due to the tontine having more time to earn interest on your money before it pays out.
This means that tontine payments typically start meaningfully higher than annuities at the outset even before the faster acceleration kicks in.
Modern tontines are structured more like the Dutch/Swedish/Danish state pensions (the safest in the world) which have the ability to adjust the ongoing payments to members based upon the investment returns and mortality experience.
Asides from saving on the cost of guarantees, the fact that the trustees of the tontine don't have to cover their liabilities by only investing in low-yield bonds means that the trustees are free to invest in a much broader set of asset classes which in the OECD's opinion will generate higher returns resulting in the tontines being able to provide meaningfully higher levels of retirement income to the members.
Again, for deferred annuities (and immediate-election GLWB annuities), which make up the vast majority of annuities that are sold and in force today, that's generally not true. The guaranteed credited rates on fixed and indexed annuities sold today are typically very close to zero (often 0.1% to 0.25%), and the guaranteed option budgets on modern variable annuities are often negative, which gives insurers a ton of leeway to reprice inforce policies as needed.
> Modern tontines are structured more like the Dutch/Swedish/Danish state pensions (the safest in the world) which have the ability to adjust the ongoing payments to members based upon the investment returns and mortality experience.
So pay-as-you-go? Does volume risk get passed along to the members, i.e., your payment in a given period is proportional to the amount of new money that gets put in during that period?
I'm with you on the asset issue, it would be great to have a less capital-heavy way to hedge longevity risk so that people aren't stuck funding their retirements with low-yield interest-bearing assets. But I don't think pay-as-you-go is a great workaround. Volume risk is significant even if you're a state-level actor and can make participation compulsory; I imagine it would be much worse as an individual player in the private sector.
An annuity is also a credit risk: if the counter-party goes under, then your payments will stop. Since most of the time the counter-party is a well-capitalized insurance company (potentially with an implicit government backstop), this risk is pretty small.
On the other hand, a tontine has a risk profile that depends on the mortality of the other nominees who participate: your payout in a given year depends on the number of nominees still alive. Also, depending on how it's structured, there might be some market risk as well.
From another perspective, for there to be an arbitrage opportunity, you'd need a way to create a synthetic annuity using a tontine (or vice-versa). But the risk profile of the tontine, which depends on the mortality of the other nominees, is hard to come by unless you are an insurance company. You can view a participant in a tontine as owning a certain life annuity as well as having sold the other participants a smaller life annuity. So each time one of them dies, you no longer have to pay that life annuity and can keep more of the income from the annuity you own.
[0]: https://en.m.wikipedia.org/wiki/Raging_Abe_Simpson_and_His_G...
An insurance that pays your loved ones if you die is called a "death insurance".
An insurance that pays you if you live past a certain age is called "life insurance". It's basically a pension fund (except that your loved ones do not get any money you set aside if you die - so usually people take both life and death insurance)
Besides insurance companies for profit motive aside, this might create a lot of unnecessary medical procedures to simply prolong someone's life, even if the quality is total shit.
a) overcharging you for covering the risk of you dying too early (death insurance is marketed as 'life' insurance)
b) overcharging you for covering the risk of you living so long that you run out of money (fixed annuities).
Disclosure: I am the founder of https://tontine.com which will shortly launch a lifetime income solution that will reward you for living longer and we are hiring.
If customers are living longer, our algo's slows down the capital payouts which means that we earn fees on more assets for longer.
Therefore it makes commercial sense for us to give customers tips to help them live longer.
For example, I just found this today: https://academic.oup.com/ageing/article/51/5/afac080/6572254...
Secondly, the trust is managed by a board of trustees that have a fiduciary duty to look after the best interests of members rather than the best interest of shareholders.
When the next crash of 2008 scale or worse occurs, would you prefer to be a general creditor of an insurer (which has a debt to equity ratio of ~12:1) or would you prefer to be a beneficiary of trust with no debt which manages assets like the Harvard or Yale endowments whilst being legally obliged to look after your best interest?
How does it work say if I die before starting to take a monthly sum? Say I want to retire at 65 but I die at 40. I wouldn't get anything in that case.
So the first hurdle to overcome is to actually reach retirement age? I guess pensions work the same way, we pay into a pension and if I die before retirement, goodbye pension.
How are monthly amounts calculated? Is it, the more I put in the more I can get out monthly when I retire? Do I get paid more monthly as I get older because we're assuming more people in my "pool" have passed away?
If I stop contributing after some time before I retire, do I still get a pension?
Looking at other insurance, naming after the thing insured (auto insurance, life insurance, motorcycle insurance) is pretty common, as is naming after the class of people who might want it (homeowner’s insurance, renter’s insurance) and the source/cause/type of loss insured against (flood insurance, malpractice insurance).
I don't think any of those is more fundamentally “correct”, and they are all marketing tools.
If you are rich and spend say $200K annually on yourself in retirement and buy an annuity that pays $300K annually, and you tell your heirs that the $100K excess will be given to them annually, that would create an incentive for them to keep you alive. If you are that rich, however, they might want you to die sooner to get access to your other assets.
"Yeah, I just want this annuity to ensure my financial future while I ride out my retirement as a skydiver..."
So you pay me (the insurer) a monthly premium and if you live to be 150 years old I pay you a million dollars and if you die earlier than that all I get is the money from the premiums? Ok, I'll take that deal and wouldn't have any problems getting reinsurance on it. Fantastic, write me a check.
150 y.o is a bit too high? Ok, no problem we'll make it 109 years. I'll still take the deal (and your money).
Lower that to you making it 40, 50 or 60 y.o to get the payout? No thanks. Well, not without a full medical and access to some actuarial tables :)
How about 90? It's pretty old, and many people won't reach it, but it's not exactly super rare either.
Then again, one topic that's popular on HN is age extending technology, if that ever became a realistic option you're screwed.
If you have ever seen life assurance policies that state somewhere in the fine print words to the effect of 'this is a whole of life policy and the premiums paid over the lifetime of this policy may exceed any expected payout' then congrats – You’ve just spotted the ‘gotcha’ of insurance.
Oh so kinda like hunger games
And encourage the insurance company to want you dead.
I like the thought exploration and fear the incentives.
Insurance company: " Pay me $xxx per month, if something happens to you, we will pay you X"
You may benefit i.e your insurance claim is more than the premiums you have paid, or you can loose out by paying more insurance over a time period than the claim. Or simply loose all together where you keep paying and you never get the opportunity to claim.
The insurance company operates like a casino, probability is calculated so it always earns more than it looses.
You don't "win" by dying young and getting an insurance payout. You just lose less than you would without the insurance.
If it's a bet, it's a bet you hope to lose. But in a large pool of people, the odds are that one of you will "win". Your descendants recoup the winnings, and the rest of you breathe a sigh of relief that it wasn't you.
It's not unreasonable for a company to facilitate that, with a small but reasonable profit. Obviously there is a lot of opportunity for malfeasance and malpractice, simply because there's so much money involved, but the concept itself isn't inherently bad.
Neither is a casino, necessarily, but a casino is offering only entertainment. There is no risk to you if you don't play. But in the case of life insurance (and other forms of insurance), you take that risk every day. If you're sufficiently well-off to self-insure, you shouldn't participate, because its offers no benefit. But it offers a genuine tangible benefit to those who cannot afford the risk and seek a hedge against it.
Unless your definition of gambling is so loose that not buying a lottery ticket is gambling.
Only in the sense that both insurance and gambling charge a fee to alter the variance of a given outcome. But insurance exists to minimize or eliminate variance, whereas gambling seeks to increase it. In this sense, they are opposites.
Think of whether it's worth it from the perspective of the seller to insure only one person? Short answer is no, because that's extremely risky. When you sell insurance policies to thousands or millions of people instead, you can use actuarial statistics and finance the policies with bonds in such a way as to ensure you will make money, with the scale limited only to how many policies you can sell, independent of whether any specific person lives or dies.
So why is life insurance worth it from the purchaser side? Many people will argue it isn't. You're virtually guaranteed to lose money. But the argument in favor is that an early death can be disastrous to others who depend on you and can't support themselves otherwise. It can be worth losing money to gain peace of mind. But really, that is the main argument. It's not a good investment. It's protection from disaster.
The only real analog on the other side is the possibility that a person lives much longer than expected without being able to support themselves, leaving loves ones on the hook. But the best form of "insurance" against that happening is pensions, social safety nets, and the individuals themselves simply saving and investing well as long as they're still working. Whatever money you might have allocated toward reverse life insurance, just allocate toward appreciating assets that will generate income when the person you're reverse insuring stays alive.
https://en.wikipedia.org/wiki/The_Wrong_Box_(novel)
Just like with life insurance, there is some opportunity for abuse...
If your loved ones love you in return that's an incentive for them to keep you alive as long as you are deriving value from life.
If they don't, you might not want them to have an incentive to keep you alive to arbitrary age.
If you die early, the buyer gets the property for the price of the initial down payment which doesn't exceed 30% of the price, if you live for a really long time the monthly payments can easily exceed the price of the property. So effectively, it's a gamble on the lifespan of the seller.
If you die early, your beneficiaries get a bigger payout than you paid in. If you live until the end of the whole life term, you've accumulated cash value and investment income on top of it.
The "catch" is really just the expense of the premiums. Whole life is out of reach of many people shopping for life insurance, especially those looking for coverage because their financial lives are already pretty close to the edge with debts, etc.
You also have a entire industry of sales people spreading misinformation about how the policies work:
https://www.whitecoatinvestor.com/debunking-the-myths-of-who...
Why would they need external encouragement for that?
So conceptually reverse life insurance is a great idea, but I can't see how it'd work in practice.
For another you could just cut them out of the will if you die young?
I don't know what problem such an insurance could solve.
The best way to insure your kids and loved ones try to keep you alive is to behave in a way that will (hopefully) cause your kids and loved ones to like you.
You may say "that's ridiculous". But how much do you trust the ethics of CEOs of large financial firms?
Why would I want to become that old, if I can't keep myself alive? Why would I want to become a burden to my loved ones?
I'm gathering from the comments that this isn't a globally recognised term, but it's like a flat (or inflation-linked) post-retirement salary based on how much you've paid into it over the years. If you don't get to a pensionable age, you get nothing. Longer you live after that threshold, the more you get paid.
https://en.wikipedia.org/wiki/Endowment_policy
Any insurance product someone is willing to buy exists.
But it pays the insurance company to make sure you die early. :(
Then give your loved ones gifts while you are alive.