Hedging annuity with life insurance

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28fe6
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Hedging annuity with life insurance

Post by 28fe6 » Sun Jun 24, 2018 10:26 pm

Does anybody hedge an annuity with a term life policy? It would seem to guard against the situation where you accidentally die within a couple years of buying the annuity.

alex_686
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Re: Hedging annuity with life insurance

Post by alex_686 » Sun Jun 24, 2018 10:37 pm

Many annunites have a guaranteed payout. i.e. the annuity will pay out at least X dollars, the monthly payment and if you die early the rest as a lump sum. Usually this is sufficient.

Grt2bOutdoors
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Re: Hedging annuity with life insurance

Post by Grt2bOutdoors » Sun Jun 24, 2018 10:55 pm

28fe6 wrote:
Sun Jun 24, 2018 10:26 pm
Does anybody hedge an annuity with a term life policy? It would seem to guard against the situation where you accidentally die within a couple years of buying the annuity.
The cost of a life insurance policy will become prohibitive after a certain age, a hedge is not effective when the cost exceeds the benefits.

You have the annuity - a hedge against running out of money before you run out of life.

You have the life insurance policy, if your heirs collect then you are dead. The annuity served its purpose. You did not run out of money, you simply ran out of time.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

mindboggling
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Re: Hedging annuity with life insurance

Post by mindboggling » Sun Jun 24, 2018 10:57 pm

There are usually many annuity payout options available. "Life" just pays out until you die. "Life with X number of years period certain" will guarantee payment for X number of years even if you die before that. You will need to chose a beneficiary. Other options are usually available, too.
In broken mathematics, We estimate our prize, --Emily Dickinson

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CWRadio
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Re: Hedging annuity with life insurance

Post by CWRadio » Mon Jun 25, 2018 7:11 am

mindboggling wrote:
Sun Jun 24, 2018 10:57 pm
There are usually many annuity payout options available. "Life" just pays out until you die. "Life with X number of years period certain" will guarantee payment for X number of years even if you die before that. You will need to chose a beneficiary. Other options are usually available, too.
When you buy a annuity (SPIA) what options should you buy to hedge? None, cash back, 10 or 20 year guaranteed, joint etc? Trying to understand the pro and con of each option. Thanks. Paul

bsteiner
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Re: Hedging annuity with life insurance

Post by bsteiner » Mon Jun 25, 2018 8:13 am

28fe6 wrote:
Sun Jun 24, 2018 10:26 pm
Does anybody hedge an annuity with a term life policy? It would seem to guard against the situation where you accidentally die within a couple years of buying the annuity.
Isn't that like betting on both teams in the same game?
CWRadio wrote:
Mon Jun 25, 2018 7:11 am
mindboggling wrote:
Sun Jun 24, 2018 10:57 pm
There are usually many annuity payout options available. "Life" just pays out until you die. "Life with X number of years period certain" will guarantee payment for X number of years even if you die before that. You will need to chose a beneficiary. Other options are usually available, too.
When you buy a annuity (SPIA) what options should you buy to hedge? None, cash back, 10 or 20 year guaranteed, joint etc? ...
If you have a significant other, perhaps joint with your significant other. Otherwise you're partially undoing the purpose of the annuity, which is to protect against living too long and running out of money, or having to live meagerly for fear of living too long and running out of money.

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Stinky
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Re: Hedging annuity with life insurance

Post by Stinky » Mon Jun 25, 2018 9:33 am

mindboggling wrote:
Sun Jun 24, 2018 10:57 pm
There are usually many annuity payout options available. "Life" just pays out until you die. "Life with X number of years period certain" will guarantee payment for X number of years even if you die before that. You will need to chose a beneficiary. Other options are usually available, too.
I personally think that choosing an annuity payout option is the best way to buy a "hedge" - that is, if you want to buy a hedge on a SPIA.

A term life insurance policy, matched up with an life-only SPIA, is at best an imperfect match.
It's a GREAT day to be alive - Travis Tritt

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