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Longevity risk

\lɔnˈʤɛvəti\ \rɪsk\

The risk that a given individual or population will live longer than expected (in particular leading to negative effects).

There are many ways in which longevity risk can be experienced, most notably basis risk, trend risk and idiosyncratic risk.

The largest holders of longevity risk are defined benefit pension plans and life insurers writing annuity contracts. If participants live longer than expected, then the pension plan or insurer will need to pay out benefits for longer. There are also many other holders of longevity risk within the economy, such as individuals with Defined Contribution pension pots, insurers of health or long-term care policies, or managers of social housing programs.

Keep exploring our Lexicon of Longevity
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