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The savings rate in the US has fallen continuously since 1906 when Insurers were prevented from cheating Tontine Pensioners out of their savings. Instead of sel

by rundmc 8y ago

The savings rate in the US has fallen continuously since 1906 when Insurers were prevented from cheating Tontine Pensioners out of their savings. Instead of selling Tontine Pensions honestly going forward, they switched to selling life annuities which were far more profitable for the Insurers. The solution is to bring back the savings products customers want to buy (Tontines Trusts) but without the rent-seeking financial institutions.

tfehring 8y ago
Disclosure: I work for an insurance company that sells annuities. This is solely my own opinion, and I have no incentive to get you to buy an annuity. With that out of the way, a few comments on this: * Tontines were exorbitantly profitable for life insurers before they were outlawed - much more so than any modern products I’m aware of. * Profitability is somewhat independent of product structure in that either a tontine or an annuity can be priced to achieve a given level of profitability. * The structure of a tontine means that payments start off much lower than a life annuity and grow substantially (exponential growth with a growth rate that itself increases exponentially) over time. Most retirees would probably prefer a higher initial payment and lower growth rate, since the amount of income they need in retirement generally doesn’t increase that much over time. * While annuities are reasonably profitable for insurers, profitability metrics are lower than you might expect. The vast majority of what I’ll loosely call “profit” goes to agents and “financial advisors” in the form of commissions, not to the insurance companies themselves. While they’re uncommon due to low demand, there are annuities that can be purchased directly from insurers (i.e., without paying a commission), and the rates are probably similar to what you’d get through a trust because the expenses scale well. * If you’re totally opposed to any profit being captured by financial institutions’ shareholders, mutual insurance companies are owned directly by their policyholders and return profits to them in the form of dividends. The only potential advantage to a trust over a mutual insurance company is that the former might be able to back policies with riskier investments (and I’m not at all certain that that’s the case). * While the personal savings rate in the US has declined since 1960, I’m not sure that that’s still true when going all the way back to the turn of the 20th century. Can you provide a source for that claim?

by rundmc 8y ago

tfehring 8y ago

Disclosure: I work for an insurance company that sells annuities. This is solely my own opinion, and I have no incentive to get you to buy an annuity. With that out of the way, a few comments on this: * Tontines were exorbitantly profitable for life insurers before they were outlawed - much more so than any modern products I’m aware of. * Profitability is somewhat independent of product structure in that either a tontine or an annuity can be priced to achieve a given level of profitability. * The structure of a tontine means that payments start off much lower than a life annuity and grow substantially (exponential growth with a growth rate that itself increases exponentially) over time. Most retirees would probably prefer a higher initial payment and lower growth rate, since the amount of income they need in retirement generally doesn’t increase that much over time. * While annuities are reasonably profitable for insurers, profitability metrics are lower than you might expect. The vast majority of what I’ll loosely call “profit” goes to agents and “financial advisors” in the form of commissions, not to the insurance companies themselves. While they’re uncommon due to low demand, there are annuities that can be purchased directly from insurers (i.e., without paying a commission), and the rates are probably similar to what you’d get through a trust because the expenses scale well. * If you’re totally opposed to any profit being captured by financial institutions’ shareholders, mutual insurance companies are owned directly by their policyholders and return profits to them in the form of dividends. The only potential advantage to a trust over a mutual insurance company is that the former might be able to back policies with riskier investments (and I’m not at all certain that that’s the case). * While the personal savings rate in the US has declined since 1960, I’m not sure that that’s still true when going all the way back to the turn of the 20th century. Can you provide a source for that claim?