This study investigated the asset allocation behavior of individuals who select
an out-of-the-money long-dated longevity-put option on their investment funds.
The asset allocations of these people within their variable annuity subaccounts
are 5–30 percent more risky than the allocations of those who do not
choose this protection. Investors who do not choose the longevity-put option
follow the classic life-cycle, age-phased reduction in equity. A rudimentary
model of utility-maximizing behavior is suggested that justifies the increased
allocation to risk as long as the investor understands the payoff structure of
the longevity put and is willing and able to exercise the annuity option if and
when it matures in the money.