Longevity Risk

DEFINITION of 'Longevity Risk'

The risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected payout ratios. Longevity risk exists due to the increasing life expectancy trends among policy holders and pensioners, and can result in payout levels that are higher than what a company or fund originally accounts for. The types of plans exposed to the greatest levels of longevity risk are defined-benefit pension plans and annuities, which guarantee lifetime benefits for policy or plan holders.

BREAKING DOWN 'Longevity Risk'

Average life expectancy figures are on the rise, but even a very small change in life expectancies can create severe solvency issues for pension plans and insurance companies. Precise measurements of longevity risk are still unattainable because the limit of medicine and its impact on life expectancies has not been quantified.

RELATED TERMS
  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  3. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  4. Pension Shortfall

    A situation in which a company offering employees a defined benefit ...
  5. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
  6. Life Expectancy

    Life expectancy in social science is the statistical age until ...
Related Articles
  1. Retirement

    Retirement Tips for Doctors

    Learn five tips that can help physicians get back on schedule in terms of making financial preparations they need to retire.
  2. Home & Auto

    Watch Your Back In The Annuity Game

    Find out how to get the upper hand when dealing with this payout challenge.
  3. Retirement

    Protecting Your Retirement Assets

    Your golden years are meant to be stress free. Keep them that way by protecting your assets.
  4. Savings

    Stocks: Who Needs Them?! (You, If You Want To Retire)

    Stocks have long been trumpeted as necessary to ensure a comfortable retirement. But does that advice still make sense?
  5. Personal Finance

    Demographic Trends And The Implications For Investment

    See how people's movements, ages, deaths and buying patterns affect portfolios worldwide.
  6. Budgeting

    Retire From Work, But Not Personal Financial Planning

    Here are some personal finance tips for those who want to live well after work ends.
  7. Options & Futures

    What's The Minimum I Need To Retire?

    Make sure your golden years are golden, not merely a struggle for existence.
  8. Retirement

    Choosing The Right Retirement Destination

    Retire in a place that fits your plans for post-work living.
  9. Budgeting

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  10. Retirement

    5 Retirement Questions Everyone Must Answer

    Find out what information you need to guide your planning and achieve your goals.
RELATED FAQS
  1. What's the difference between Social Security Disability Insurance (SSDI) and Supplemental ...

    Disabled persons can receive payments through two programs: Social Security Disability Insurance and Supplemental Security ... Read Full Answer >>
  2. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  3. Does renters insurance cover personal injuries?

    Renters insurance provides two main forms of coverage – liability and contents insurance – and they are offered together ... Read Full Answer >>
  4. Does renters insurance cover jewelry?

    Renters insurance provides personal property coverage that covers your personal property – including jewelry – in case of ... Read Full Answer >>
  5. Why might landlords require renters insurance?

    Landlords can require renters insurance to lower their own liability and insurance costs. According to data from the Insurance ... Read Full Answer >>
  6. How liquid are variable annuities?

    Variable deferred annuities and variable immediate annuities are not considered liquid. Variable deferred annuities carry ... Read Full Answer >>
Hot Definitions
  1. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  4. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  5. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
Trading Center