Annuities can be a matter of contention amount the various financial experts, but most agree that if impaired annuities conditions can be met then an annuity can give options to people who may otherwise have none.
Annuities are financial products offered by insurance companies. The annuity is purchased, either in one big lump sum or a series of payments, and then at a later time the owner of the annuity begins to receive monthly payments. The advantage of the annuity is that the money sitting in the account is tax-deferred until the funds are withdrawn. Since many people are in lower tax brackets after retiring than they were while still working, this tax advantage can save quite a bit of money in taxes.
Impaired Annuities Explained
Annuities are paid out on a monthly basis, usually until the death of the annuity owner. Insurance actuaries estimate the life span of annuity owners, which influence the amount of the payout each annuity owner receives. When a lifespan is estimated, several factors are considered. Certain health conditions can lower a person's life expectancy, and whether or not these conditions actually do make someone die sooner than average is nothing more than an estimate on the actuary's part.
When a person has a bona fide physical condition which may decrease his or her life expectancy, this makes the person eligible for an impaired annuity. Essentially what the insurance company is saying is, "We know you won't live as long as everyone else, so to make it even we'll give you more money from your annuity on a monthly basis." Annuities simply wouldn't make sense otherwise for people with certain health conditions without this accommodation.
Listing of Impaired Annuities Conditions
Although the actual conditions which allow someone to open an impaired annuity vary, some qualifying conditions are common among insurers:
- Heart Disease
- High Blood Pressure
- Smoking, although not every insurance company offers impaired annuities for this condition.
A person cannot simply assert that these conditions exist and request an impaired annuity. Impaired annuities conditions must be verified through medical history review and possibly through a medical examination conducted by an insurance company physician.
Even with a condition which allows for an impaired annuity, there is no guarantee that a person will live for fewer years that a healthy person. If a person has an impaired annuity but manages to live far beyond their supposed life expectancy, the financial advantage is theirs.
Impaired Annuities Conditions in the UK
In the United Kingdom, retirement pensions are commonly converted into annuity accounts. Impaired annuities conditions in the UK apply to people who have lowered life expectancies to the degree that they are not expected to live past four or five years.
- Heart Disease
- Major Organ Failure
Impaired annuities are also offered to some nursing home residents with health conditions, and can be purchased quickly for immediate payouts. In this instance, the payments are disbursed directly to the nursing home or caregiver.
Impaired Annuities Amounts
How much more money can a person expect to receive with an impaired annuity over a standard annuity? Most insurance estimates place the figure at around approximately thirty percent, but this amount is merely estimation and is not necessarily indicative of what every person will receive. Insurance companies take many factors into consideration when deciding on what the payout amount will be on an annuity, and of course the amount of money a person initially invests into the annuity will have the biggest influence on how much the annuity income will be.
The best way to figure out if an impaired annuity is right for you is to speak to a competent financial advisor. Annuities are complicated products, and you need to make sure that you fully understand what you are signing up for.