Longevity Risk

AAA

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.

INVESTOPEDIA EXPLAINS '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. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  2. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  3. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
  4. Shortfall

    The amount by which a financial obligation or liability exceeds ...
  5. Mortality And Expense Risk Charge

    A variable annuity fee included in certain annuity or insurance ...
  6. Longevity Derivatives

    A class of securities that provides a hedge against parties that ...
Related Articles
  1. Watch Your Back In The Annuity Game
    Home & Auto

    Watch Your Back In The Annuity Game

  2. Protecting Your Retirement Assets
    Retirement

    Protecting Your Retirement Assets

  3. Stocks: Who Needs Them?! (You, If You ...
    Savings

    Stocks: Who Needs Them?! (You, If You ...

  4. Demographic Trends And The Implications ...
    Personal Finance

    Demographic Trends And The Implications ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center