Posted on September 01, 2005 at 16:50:07:
There is insurance that will pay off even if you don’t die. In exchange for a chunk of money, it will pay you every month for the rest of your life. The “bet” is whether you keep living longer than the insurance company expects. If you pay a little extra, it will even keep paying your heirs after you die.
This magic insurance is an annuity, and an immediate annuity is a lot safer—and has a lot better reputation—than a deferred annuity that depends on a gradual accumulation of assets.
As corporate pensions disappear, retirees are increasingly interested in these annuities that start paying off right away. Prices depend on the age of the buyer and the credit rating of the insurer. The return on investment can be double that of Treasury bonds. Payments are partly returned capital and partly earnings. It’s wise to think through how much of one’s assets to commit to a contract, and to consult one’s heirs beforehand.