How does longevity insurance work?
In exchange for monthly premiums, Sun Life makes monthly pension payments to the plan for the lifetime of the covered pensioners. The monthly premiums are locked in on the contract start date. If pensioners happen to live longer than expected, Sun Life’s monthly payments will cover the difference.
Advantages for plan sponsors
- Reduced pension volatility
- Longevity risk protection
- Retain control of investments
- Benefit security
- Flexibility
With longevity insurance, plan sponsors don’t need to worry about:
- the longevity base table understating current life expectancies (estimation error risk), and
- the risk that future longevity improvements prove higher than expected (trend risk).
Misestimating longevity can result in a 3% to 4% increase to liabilities for each year the average plan member lives beyond expected*. Insuring against this risk can cost less.
* Sun Life estimates
Ready for group annuities?
An annuity buy-in transfers all the risks to an insurer with no impact for plan members.
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