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Real longevity insurance with a deductible: introduction to advanced-life delayed annuities (ALDA). (English) Zbl 1215.91036

Summary: This paper explores the financial properties of a concept product called an advanced-life delayed annuity (ALDA). The ALDA is a variant of a pure deferred annuity contract that is acquired by installments, adjusted for consumer price inflation, and pays off toward the end of the human life cycle. The ALDA concept is aimed are the growing population of North Americans without access to a traditional defined benefit (DB) pension plan and the implicit longevity insurance that a DB plan contains. I show that under quite reasonable pricing assumptions, a consumer can invest or allocate $ 1 per month, while saving for retirement, and receive between $ 20 and $ 40 per month in benefits, assuming the deductible in this insurance policy is set high enough. The ALDA concept might go a long way in mitigating the psychological barrier to voluntary lump-sum annuitization.

MSC:

91B30 Risk theory, insurance (MSC2010)
91G70 Statistical methods; risk measures
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