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Ask HN: Why not have reverse life insurance that rewards longevity?
In particular, reverse life insurance would only pay out to your loved ones if you live beyond a certain age.
This would encourage your loved ones to keep you alive until you reach that age.
- PaulHoule 4y agoIt's a general problem in retirement that if you live a long time you could outlive your savings. Some answers are https://en.wikipedia.org/wiki/Life_annuity https://en.wikipedia.org/wiki/Life_annuity and https://en.wikipedia.org/wiki/Tontine https://en.wikipedia.org/wiki/Tontine
- rundmc 4y agoThe OECD Pensions team has recently confirmed that in this current environment, tontines offer better value for consumers than annuities.
- dmurray 4y agoSounds like an arbitrage opportunity - shouldn't they pay out roughly the same?
- rundmc 4y agoInsurers make a double profit by charging management fees and by mispricing the longevity risk which essentially means that those dying earlier generate excess profits for the insurer. In a tontine, those dying earlier generate excess income for the retirees. It's explained here: https://tontine.com/explainer https://tontine.com/explainer
- tfehring 4y agoI used to price annuities (but no longer have any affiliation or financial interest in the industry) and this isn’t true IME - annuities are typically priced using best-estimate mortality rates. Outside of immediate annuities, which are a pretty small chunk of the business, mortality rates just wouldn’t be a useful lever to increase profits, since the predominant decrement is generally lapse/surrender, not death. Annuities are profitable because insurers price to high target IRRs or equivalent metrics, build in enough fees or spread to achieve that IRR, and build in enough management levers (e.g. the ability to increase those fees/spread) that they can compensate for any mispricing after the fact.
- tfehring 4y agoYes, there’s no reason for the expected total value of your payments to inherently be higher or lower for a tontine vs an annuity, after adjusting for time value of money. Typically a tontine would have lower payments in early years with much faster acceleration later on compared to an annuity. That means that healthier people would generally do better with a tontine than an annuity, and less healthy people would do better with an annuity. It also means that the nominal amount of payments from a tontine is higher than those from an equivalently priced annuity, but that difference is entirely due to the tontine having more time to earn interest on your money before it pays out.
- rundmc 4y agoTontines have no liabilities so do not need guarantees. Therefore incomes do not suffer from the underwriting fees of insurers. This means that tontine payments typically start meaningfully higher than annuities at the outset even before the faster acceleration kicks in.
- tfehring 4y agoI guess I don't understand what you mean when you say "tontines have no liabilities." Mechanically, the way that a tontine works (or at least the way that they worked historically) is that I give you a fixed amount of money today, and in exchange you promise me a series of payments that are contingent on my life and the lives of the others in the risk pool. That promised series of payments is a liability, as a matter of accounting but also for all other practical purposes. Maybe you have a different structure in mind, but I don't see a way to operate a tontine-like product without a balance sheet.
- rundmc 4y agoThe liabilities of the insurer are typically fixed amounts regardless of investment performance or changes in mortality. If and when the insurer miscalculates they will be wiped out if their assets don't match their liabilities. Modern tontines are structured more like the Dutch/Swedish/Danish state pensions (the safest in the world) which have the ability to adjust the ongoing payments to members based upon the investment returns and mortality experience. Asides from saving on the cost of guarantees, the fact that the trustees of the tontine don't have to cover their liabilities by only investing in low-yield bonds means that the trustees are free to invest in a much broader set of asset classes which in the OECD's opinion will generate higher returns resulting in the tontines being able to provide meaningfully higher levels of retirement income to the members.
- s28l 4y agoThe risk profile is different. Yes, both have a payout that depends on your own mortality, but there are other risk factors to consider. An annuity is also a credit risk: if the counter-party goes under, then your payments will stop. Since most of the time the counter-party is a well-capitalized insurance company (potentially with an implicit government backstop), this risk is pretty small. On the other hand, a tontine has a risk profile that depends on the mortality of the other nominees who participate: your payout in a given year depends on the number of nominees still alive. Also, depending on how it's structured, there might be some market risk as well. From another perspective, for there to be an arbitrage opportunity, you'd need a way to create a synthetic annuity using a tontine (or vice-versa). But the risk profile of the tontine, which depends on the mortality of the other nominees, is hard to come by unless you are an insurance company. You can view a participant in a tontine as owning a certain life annuity as well as having sold the other participants a smaller life annuity. So each time one of them dies, you no longer have to pay that life annuity and can keep more of the income from the annuity you own.
- cryptonector 4y agoI don't understand why tontines are illegal in the U.S.
- spacemanmatt 4y agoProbably judges got tired convicting geezers who committed murder to win the tontine.
- whichfawkes 4y agoToo many murders?
- clifdweller 4y agoit was mostly because of fraud. if you are a banker seems quite a nice premise to sell your rich friends a tontine with them and a bunch of Bering sea crab fishermen in it.
- rundmc 4y agoTontines are perfectly legal. See: https://tontine.com/news/tontines-can-a-pension-this-good-be-real-and-is-it-totally-legit https://tontine.com/news/tontines-can-a-pension-this-good-be...
- giaour 4y agoI also wanted to ask this but realized I only "knew" they were illegal from the Simpsons[0], which is maybe out of date and might have been inaccurate at the time. [0]: https://en.m.wikipedia.org/wiki/Raging_Abe_Simpson_and_His_Grumbling_Grandson_in_%27The_Curse_of_the_Flying_Hellfish%27 https://en.m.wikipedia.org/wiki/Raging_Abe_Simpson_and_His_G...
- Bostonian 4y agoThere exist fixed annuities that pay you $X annually as long as you live, which can be thought of as reverse life insurance. If you are rich and spend say $200K annually on yourself in retirement and buy an annuity that pays $300K annually, and you tell your heirs that the $100K excess will be given to them annually, that would create an incentive for them to keep you alive. If you are that rich, however, they might want you to die sooner to get access to your other assets.
- rundmc 4y agoIf you want your kids even more incentivised to take care of you and help you live healthier & longer, you need to turn yourself from a potential financial liability (the kids will have to support you if you run out of money) into an income generating asset by joining a Tontine (see https://tontine.com/explainer https://tontine.com/explainer)
- SilasX 4y agoSince it's reverse life insurance, I had this shower thought that the incentives should be the opposite. Like, for life insurance, you get discounts for factors that make you a low risk of dying. So for annuities, shouldn't you get bonuses for factors that make you a higher risk for dying? "Yeah, I just want this annuity to ensure my financial future while I ride out my retirement as a skydiver..."
- Bostonian 4y agoAn "impaired risk annuity" AKA "medically underwritten immediate annuity" offers higher payments for annuitants in provably poor health.
- bckr 4y agoI like that you're thinking differently but I don't see what the economic model is here. Then again, I don't understand normal life insurance either!
- rundmc 4y agoBecause life insurance companies make profits by: a) overcharging you for covering the risk of you dying too early (death insurance is marketed as 'life' insurance) b) overcharging you for covering the risk of you living so long that you run out of money (fixed annuities). Disclosure: I am the founder of https://tontine.com https://tontine.com which will shortly launch a lifetime income solution that will reward you for living longer and we are hiring.
- jaclaz 4y agoOnly as a reference on the history of tontines: https://en.wikipedia.org/wiki/Tontine https://en.wikipedia.org/wiki/Tontine
- jfengel 4y agoI will say I'm impressed that you secured the domain name. That word was precisely what came to mind upon reading this question. A tontine is precisely insurance against living too long.
- rundmc 4y agoI still can't believe the price they quoted us for it. Sometimes it makes no sense to haggle.
- WFHRenaissance 4y agoHow long before you start killing customers because they're living too long?
- treis 4y agoBecause I want my family to be supported in the event that I die early. I don't really see much value in leaving them a prize for dying old.
- toomuchtodo 4y agoIndeed. You're buying a put option on yourself to insure against a black swan event.
- jfengel 4y agoThey don't need a prize for you dying old. But you yourself would benefit from insurance against outliving your savings.
- rundmc 4y agoBut if you live so long that you run out of money then you become a financial liability to your family. That's why longevity insurance makes sense.
- aynyc 4y agoThis would encourage your loved ones to keep you alive until you reach that age. Besides insurance companies for profit motive aside, this might create a lot of unnecessary medical procedures to simply prolong someone's life, even if the quality is total shit.
- rhn_mk1 4y agoThere's a dual to that in life insurance, where it incentivizes procedures (or inaction) to shorten life.
- nebula8804 4y agoThe Social Security scam in the US. Encourage people to eat poorly by making healthy food less subsidized compared corn filled garbage and watch as your workers spend a whole careers working while eating poorly to generate value only to die off at retirement as they start to collect on their hard earned effort.
- DennisP 4y agoCould fix that by making assisted suicide an option for the patient. Patient has to live, and want to live.
- aynyc 4y agoYou have to assume the patient has mental capacity to make that decision. I saw first hand family member without DNR went through. I don't want that for anyone.
- DennisP 4y agoGood point.
- MrTortoise 4y agosurley brain in a jar is the more logical outcome?
- 4y ago
- NickRandom 4y agoI'm not sure about what the concept is but tell me if this is more or less it - So you pay me (the insurer) a monthly premium and if you live to be 150 years old I pay you a million dollars and if you die earlier than that all I get is the money from the premiums? Ok, I'll take that deal and wouldn't have any problems getting reinsurance on it. Fantastic, write me a check. 150 y.o is a bit too high? Ok, no problem we'll make it 109 years. I'll still take the deal (and your money). Lower that to you making it 40, 50 or 60 y.o to get the payout? No thanks. Well, not without a full medical and access to some actuarial tables :)
- the_only_law 4y ago> Lower that to you making it 40, 50 or 60 y.o to get the payout? N How about 90? It's pretty old, and many people won't reach it, but it's not exactly super rare either. Then again, one topic that's popular on HN is age extending technology, if that ever became a realistic option you're screwed.
- NickRandom 4y agoThe percentage of people living past the age of 90 is much greater than it was in the neolithic era so the premiums would be priced appropriately. To 'win' all the insurer needs to do is ensure that payouts never exceed 49% of premiums received. Calculating the premiums payable on a million dollar policy with a cut-off of living beyond the age of 90 is a dark art relegated to the world of Excel tables, COBOL, Fortran and AS400 but gut instinct tells me that the premiums would be at a level that most people with access to a calculator would go ‘ah hell no, I’ll stick my premiums in to a fixed deposit interest bearing account instead’. If you have ever seen life assurance policies that state somewhere in the fine print words to the effect of 'this is a whole of life policy and the premiums paid over the lifetime of this policy may exceed any expected payout' then congrats – You’ve just spotted the ‘gotcha’ of insurance.
- JJMcJ 4y agoAssuming public health doesn't collapse in the near future, and that's a real possibility, it seems like 85 is the new 70. That is, someone makes it to 85, you can say they had a long life, instead of the old three score and ten.
- jimkleiber 4y ago> This would encourage your loved ones to keep you alive until you reach that age. And encourage the insurance company to want you dead. I like the thought exploration and fear the incentives.
- diordiderot 4y agoInsurance company isn't the beneficiary of excess.
- polishdude20 4y agoIt's the other people in the tontine. So don't let that list leak I guess?
- diordiderot 4y agoHaha that's for sure
- hgsgm 4y agoCreate a will that gives all your money to a bunch of charities, but not enough that they would kill for it. Then give your loved ones gifts while you are alive.
- xg15 4y ago> This would encourage your loved ones to keep you alive until you reach that age. Why would they need external encouragement for that?
- groffee 4y agoUnfortunately there's been a few cases where families have basically killed off older relatives to get their inheritance early. So conceptually reverse life insurance is a great idea, but I can't see how it'd work in practice.
- lolsal 4y agoConsider a scenario where you don't want to be alive, like dementia, or cancer, etc.
- xg15 4y agoUh, okay. Then I guess the scheme should motivate my family to keep me alive against my explicit will, even if it makes no medical sense and would only prolong my suffering. And that's supposed to be a good thing?
- barbarbar 4y agoIn most cases the life insurance is for the loved ones to continue their life in a reasonable way in case you die from illness or accident. So despite they want to keep you alive that is not allways what happens. So the reverse may be "nice" but in case you die early it is a double penalty for the loved ones.
- scrappyjoe 4y agoYou should research to tontines, as they are somewhat related. You pay a lump sum along with a number (10-1000) of people of a similar age to buy an asset - say, a property - and then you each receive an equal share of the income each year. As people die off, the income is shared across successively less people until at the end it’s only one person who receives the income of the entire asset. At the death of the final recipient the asset generally cedes to the administrating company as payment for their administration over the life of the tontine.
- woojoo666 4y ago> As people die off, the income is shared across successively less people until at the end it’s only one person who receives the income of the entire asset Oh so kinda like hunger games
- brudgers 4y agoThat's basically an endowment policy. https://en.wikipedia.org/wiki/Endowment_policy https://en.wikipedia.org/wiki/Endowment_policy Any insurance product someone is willing to buy exists.
- staticman2 4y agoFor one thing your loved ones don't have much influence on how long you live? For another you could just cut them out of the will if you die young? I don't know what problem such an insurance could solve. The best way to insure your kids and loved ones try to keep you alive is to behave in a way that will (hopefully) cause your kids and loved ones to like you.
- gifjif 4y agoInsurance in ANY form is gambling. Plain and simple. It is a bet that takes places. Just framed in a more flowery language compared to a traditional betting statement "If I win you pay me x, if you win I pay X". Insurance company: " Pay me $xxx per month, if something happens to you, we will pay you X" You may benefit i.e your insurance claim is more than the premiums you have paid, or you can loose out by paying more insurance over a time period than the claim. Or simply loose all together where you keep paying and you never get the opportunity to claim. The insurance company operates like a casino, probability is calculated so it always earns more than it looses.
- jfengel 4y agoInsurance is hedging risk. The goal is not to make a profit; the goal is to cut your losses. You don't "win" by dying young and getting an insurance payout. You just lose less than you would without the insurance. If it's a bet, it's a bet you hope to lose. But in a large pool of people, the odds are that one of you will "win". Your descendants recoup the winnings, and the rest of you breathe a sigh of relief that it wasn't you. It's not unreasonable for a company to facilitate that, with a small but reasonable profit. Obviously there is a lot of opportunity for malfeasance and malpractice, simply because there's so much money involved, but the concept itself isn't inherently bad. Neither is a casino, necessarily, but a casino is offering only entertainment. There is no risk to you if you don't play. But in the case of life insurance (and other forms of insurance), you take that risk every day. If you're sufficiently well-off to self-insure, you shouldn't participate, because its offers no benefit. But it offers a genuine tangible benefit to those who cannot afford the risk and seek a hedge against it.
- francisofascii 4y agoActually, insurance if done properly is the opposite of gambling for the person buying the insurance. You are paying a small fee to not have to gamble.
- avgcorrection 4y agoInsurance is like reverse gambling. The only similarity is that the house always wins in the long run. Unless your definition of gambling is so loose that not buying a lottery ticket is gambling.
- Rerarom 4y agoIsn't this just private pension?
- nonameiguess 4y agoIt's worth considering the existing form of "reverse life insurance" that already exists, which is simply selling life insurance policies. The counterparty in a two-party bet is always the reverse bet. Think of whether it's worth it from the perspective of the seller to insure only one person? Short answer is no, because that's extremely risky. When you sell insurance policies to thousands or millions of people instead, you can use actuarial statistics and finance the policies with bonds in such a way as to ensure you will make money, with the scale limited only to how many policies you can sell, independent of whether any specific person lives or dies. So why is life insurance worth it from the purchaser side? Many people will argue it isn't. You're virtually guaranteed to lose money. But the argument in favor is that an early death can be disastrous to others who depend on you and can't support themselves otherwise. It can be worth losing money to gain peace of mind. But really, that is the main argument. It's not a good investment. It's protection from disaster. The only real analog on the other side is the possibility that a person lives much longer than expected without being able to support themselves, leaving loves ones on the hook. But the best form of "insurance" against that happening is pensions, social safety nets, and the individuals themselves simply saving and investing well as long as they're still working. Whatever money you might have allocated toward reverse life insurance, just allocate toward appreciating assets that will generate income when the person you're reverse insuring stays alive.
- gergesh 4y agoI think this is what investing is. Being genuine and not snarky here, but you can put money into a pool and save it and make more back over time, whether or not it's nominally "insurance".
- bilsbie 4y agoI just saw a similar idea for a gym membership. Expensive upfront cost but you get $5 dollars back every time you work out.
- abeppu 4y agoI think a key issue is that people that want to go the gym don't want it to be crowded. Under the current model, supposedly gyms rely on people paying memberships but not going. But also, the people that are actually there also want it to be well under capacity so they don't have to wait for equipment, etc. So even if you're really confident that you would go to the gym often enough to recoup your costs, would you want to go to a gym where everyone else has an extra motivation to go?
- iso1631 4y agoAnd if you want to go to the gym more often, but things get in the way, this gives you a more concrete incentive to go
- tptacek 4y agoIsn't this basically how social security, or, for that matter, a defined benefit pension works?
- hirundo 4y agoIt exists, and is known as "compound interest".
- sethhochberg 4y agoAnd already something exposed to the insurance world via Whole Life policies - which are technically life insurance, but with an investment vehicle baked in. Whole life policies are typically a lot more expensive than term life, but a portion of premiums paid goes into cash value which can be invested in markets, and often tax-free. If you die early, your beneficiaries get a bigger payout than you paid in. If you live until the end of the whole life term, you've accumulated cash value and investment income on top of it. The "catch" is really just the expense of the premiums. Whole life is out of reach of many people shopping for life insurance, especially those looking for coverage because their financial lives are already pretty close to the edge with debts, etc.
- staticman2 4y agoThe "Catch" with whole life is the expected returns are lower than term life coupled with clean, insurance free investment. You also have a entire industry of sales people spreading misinformation about how the policies work: https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/ https://www.whitecoatinvestor.com/debunking-the-myths-of-who...
- Bostonian 4y agoArguably whole life (WL) policies should be compared with buying a term policy and investing the difference in bonds, since WL policies are relatively safe. Then WL policies are competitive because of the tax benefits. WL policies will lag (term + stocks), but the latter strategy is more risky.
- akramquraishi 4y agoInsurance companies will be hiring contract killers to save their premiums.
- Ishmaeli 4y agoThat's what annuities are designed to do. In life insurance, you pay the company a small periodic payment in exchange for a large lump sum payment if you die while the coverage is in force. If you die after paying just one premium, you win! If you live so long that you paid more in premium than the lump sum, you lose! With an annuity, you pay the company a large lump sum in exchange for a small periodic payment for the rest of your life. If you die after receiving just one payment, you lose! If you live so long that the company pays you more than your initial lump sum payment, you win!
- muzani 4y agoI used to say insurance was a form of gambling, but it's really just planning around worst case scenarios (dying before I can save for kids' education). Annuities sound like the actual gambling, lol.
- blairanderson 4y agoyes and simple calculators are everywhere: https://www.schwab.com/annuities/fixed-income-annuity-calculator https://www.schwab.com/annuities/fixed-income-annuity-calcul... Its basically 5% Annually... to which stock-people say "why not put into a dividend earning fund" and analysis paralysis kicks in...
- burntoutfire 4y agoI went into that calculator and it does not say anything about inflation... Do annuities get wiped out by inflation (i.e. they'll keep paying me the agreed monthly amount, but unfortunately it's not going to be worth much)? If, then they're pretty crappy.
- d--b 4y agoThis is what we call life insurance in France. It's quite common. An insurance that pays your loved ones if you die is called a "death insurance". An insurance that pays you if you live past a certain age is called "life insurance". It's basically a pension fund (except that your loved ones do not get any money you set aside if you die - so usually people take both life and death insurance)
- Ayesh 4y agowe have "life insurance" (that pays on death), and "pension plans" that trickles money to your account until you eventually die. But the terms "death insurance" and "life insurance" (in French) make so much sense! Those are how I will call them from now on, no matter how telemarketers who call me name them.
- Someone 4y ago“Live insurance” also makes sense. It means you get money when you lose your life, just as “car insurance” means you get money when you lose your car.
- zosima 4y agoRobert Louis Stevenson wrote an extremely funny novel about Tontines, which are a variant of what you suggest: https://en.wikipedia.org/wiki/The_Wrong_Box_(novel) https://en.wikipedia.org/wiki/The_Wrong_Box_(novel) Just like with life insurance, there is some opportunity for abuse...
- avgcorrection 4y agoYou think that spouses are giving each other chocolates so that they will die off quicker?
- dragonwriter 4y ago> This would encourage your loved ones to keep you alive until you reach that age. If your loved ones love you in return that's an incentive for them to keep you alive as long as you are deriving value from life. If they don't, you might not want them to have an incentive to keep you alive to arbitrary age.
- ttul 4y agoIt is very common to buy life insurance with a return-of-premium option. If you don’t die before a certain age, you get back all of the premiums you paid into the plan. There’s your incentive for longevity.
- LeroyRaz 4y agoIsn't this a pension?
- rundmc 4y agoIf it's a DC pension such as a 401k or an IRA then they punish you for living longer because they once they run out that's it.
- mrtweetyhack 4y ago
- throwaway81523 4y ago> In particular, reverse life insurance would only pay out to your loved ones if you live beyond a certain age. But it pays the insurance company to make sure you die early. :(
- Barrin92 4y agoIn France there's a practice that exists since the Middle Ages, it's called viager. You can sell a property and retain the right to live in it and get a modest down payment much smaller than in regular real estate transactions (sometimes zero), followed by monthly payments that meet your living expenses. If you die early, the buyer gets the property for the price of the initial down payment which doesn't exceed 30% of the price, if you live for a really long time the monthly payments can easily exceed the price of the property. So effectively, it's a gamble on the lifespan of the seller.
- TowerTall 4y agoI read a story, maybe 20 years ago, about this very old french woman that had an amazing house overlooking the ocean. A middle-aged rich guy showed up and bought the house on that conditions you mention. The woman could stay in the house until she died. This woman went on to become the oldest person in France and the guy died many years before her.
- billfruit 4y agoIt is called reverse-mortgage in English speaking world.
- AnimalMuppet 4y agoYes. But if the insurance amount is large enough, it would encourage the insurance company to hire someone to kill you. You may say "that's ridiculous". But how much do you trust the ethics of CEOs of large financial firms?
- oliwarner 4y agoYou're describing a pension. I'm gathering from the comments that this isn't a globally recognised term, but it's like a flat (or inflation-linked) post-retirement salary based on how much you've paid into it over the years. If you don't get to a pensionable age, you get nothing. Longer you live after that threshold, the more you get paid.
- guenthert 4y ago> This would encourage your loved ones to keep you alive until you reach that age. Why would I want to become that old, if I can't keep myself alive? Why would I want to become a burden to my loved ones?
- shreyshnaccount 4y agothats called a savings account. you deposit an amount, it gives you a return. the other important thing being it doesn't really best inflation