Wednesday, July 31, 2013

Impaired Risk SPIA

If your client is interested in lifetime annuity benefits and expresses an interest in the possibility of an Impaired Risk quote, let me know and I will walk you through the process, beginning with our quoting standard rates, and then allowing our underwriters to review your client’s medical records to determine their eligibility. Thereafter, a final quote will be provided.


Immediate annuities provide benefit payments over a period of time, often a stream of payments guaranteed to last for a client’s lifetime. The cost of the annuity is partially determined on the life expectancy of the annuitant. For example, if two men, one aged 70 and the other aged 55, both purchase lifetime immediate annuities costing $500,000, the younger one will receive smaller monthly benefits because he is expected to live longer than the 70 year-old.

Suppose the younger client has a medical condition, such as heart disease, diabetes or cancer, with the probable outcome of a shortened life expectancy. Upon the request of the client, we can perform an underwriting review of the records and determine an adjusted life expectancy based on his condition. The lower life expectancy (an “Impaired Risk”) will reduce the cost of lifetime annuity benefits and produce larger annuity
benefit payments.

An example for a man age 65;  If he is healthy his lifetime income would be $748 per month on a $100,000 annuity.  If that same person has heart disease or Parkinson’s or Kidney Disease his lifetime payout could increase to $902 per month.


With medical underwriting for life insurance, the insurance company reviews medical records and may request a physical exam or lab tests to determine if the proposed insured has an impaired life expectancy. This allows pricing to reflect the increased claims expenses anticipated for certain medical conditions. The company can increase the cost of the insurance in order to match the increased risk in anticipated claims.

With a SPIA, the opposite is true. It is in the client’s best interest to share as much information as possible in order to help the insurance company determine an adjusted life expectancy, because it will result in a decreased cost of the annuity benefits with resulting higher benefit payments. The company makes its determination based only on submitted medical records; there are no physicals or lab tests for the client to undergo.


Conditions which merit review include heart disease, diabetes, cancer, chronic lung disease, stroke, and chronic conditions affecting kidney, pancreas, or liver functions. Some medical conditions have little or no negative effect on life expectancy. Examples include arthritis, allergies, or hearing difficulties.

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