Survivor Bond

DEFINITION of 'Survivor Bond'

A type of bond whose future coupons are based on the percentage of a stated population group who are still alive - the survivors, in other words - on the future coupon payment dates. As mortality increases and survivors of the group decrease over time, coupon payments decline until they eventually reach zero. Survivor bonds are used by annuity providers and pension plan managers to hedge aggregate longevity risk.

BREAKING DOWN 'Survivor Bond'

Longevity risk refers to the risk of loss sustained from an unanticipated reduction in mortality rates and a corresponding increase in longevity. While advances in health care and medicine have led to sustained increases in life expectancy over the years, aging populations are putting severe financial pressure on government pension plans around the world. Survivor bonds help annuity providers and pension plans hedge this risk, since these bonds are ideal for matching their liabilities in the presence of longevity risk.

RELATED TERMS
  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Longevity Derivatives

    A class of securities that provides a hedge against parties that ...
  3. Longevity Risk

    The risk to which a pension fund or life insurance company could ...
  4. Liability Driven Investment - LDI

    A form of investing in which the main goal is to gain sufficient ...
  5. Pension Plan

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

    A situation in which a company offering employees a defined benefit ...
Related Articles
  1. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  2. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  3. 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.
  4. Retirement

    Chipping Away At The Pension Freeze Trend

    Learn five steps that'll put your retirement back into your own hands.
  5. Retirement

    Lump Sum Versus Regular Pension Payments

    If you're about to retire, you may be facing this dilemma soon. Find out what your options are.
  6. Chart Advisor

    Play the Rotation Out of High Yielders (XLU, TLT)

    The market may be at the cusp of a rotation out of high yielding instruments and into growth plays.
  7. Bonds & Fixed Income

    The Bond Investor's Challenge: Generating Yield in a Low Interest Environment

    Discover expert advice on how to generate higher yield in a bond portfolio in 2016, despite the global challenges of low rates and high debts.
  8. Investing News

    Money Market vs. Short-Term Bonds: A Compare and Contrast Case Study

    Discover characteristics of money market and short-term bonds, including how the investments are alike and different, and the benefits and risks each offers.
  9. Investing News

    Performance Review - U.S. Fixed Income in 2015

    Review the performance of the U.S. fixed-income securities in 2015, from the relatively strong U.S. municipal bond market to the calamitous high-yield space.
  10. Bonds & Fixed Income

    Do Long-Term Bonds Have A Greater Interest Rate Risk Than Short-Term Bonds?

    The answer is yes, and there are two main reasons why.
RELATED FAQS
  1. What is a good debt ratio, and what is a bad debt ratio?

    Learn about the factors that influence how investors and lenders evaluate the debt ratio for a company and why the answer ... Read Answer >>
  2. What is a basis point (BPS)?

    A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial ... Read Answer >>
  3. Do hedge funds invest in bonds?

    Learn how hedge funds use bonds and other fixed income securities to generate significant, recurring returns for their shareholders. Read Answer >>
  4. Do mutual funds pay dividends or interest?

    Learn how and why mutual funds pay interest or dividends, including the different funds and which types generate each type ... Read Answer >>
  5. Can mutual funds only hold bonds?

    Find out which mutual funds include only bonds in their portfolios. Learn why some funds invest in different types of bonds ... Read Answer >>
  6. What are the risks of annuities in a recession?

    Distinguish between the most common types of annuities, and understand which types of annuities pose the most risk during ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center