Question: I have some serious health issues, and have heard about immediate annuities that have a higher payout if you are sick. I think that they are called “Rated” Single Premium Immediate Annuities. What is that? from Colin in Boise, Idaho
Answer: Thanks for the question Colin, and I’m sorry to hear about your health issues. Your question is a good one, and most people in the annuity industry don’t even know this product exists. Some call this product a “Rated Single Premium Immediate Annuity”, while I like to refer to it as a “Medically Underwritten Single Premium Immediate Annuity (SPIA).”
A Medically Underwritten SPIA is an income annuity that will pay you a higher guaranteed income stream than a normal SPIA due to the annuity owner’s health issues. With any normal SPIA type payout, the contractually guaranteed income stream is based on your life expectancy at the time of application. In essence, you are betting against the insurance company that you think you will live longer than they have actuarially projected. If you live longer than your life expectancy, then the carrier is on the hook to pay you regardless of how long you live. As a side note, I usually structure the SPIA contract so that the insurance company doesn’t keep a penny if you die before your life expectancy, and 100% of what’s remaining in your account goes to your listed beneficiary(s).
With a Medically Underwritten SPIA, the major difference is that you are actually trying to prove to the annuity carrier that your life expectancy is less than what they typically project for your age because of your health issues. Because the income payments are based on life expectancy, it’s common sense that if your life expectancy is less, then the payments will be higher.
There are only a select few annuity carriers that even offer a Medically Underwritten SPIA. Some require only the hard copy medical records to see if you qualify, and some need a face to face exam and testing as well as the paperwork. Normally, the underwriting process takes about 30 to 90 days and not everyone will qualify. I always tell people who apply for these products that you might feel sick, but the annuity carrier might not think you are sick enough. I know that sounds brutal and strange, but most cases that I see that are approved involve late stage cancer or incurable type diseases that is pretty much guaranteed to statistically lessen one’s life expectancy.
I personally think that it is worth finding out if you can receive a higher payout with a Medically Underwritten SPIA. The worst thing that can happen is that the annuity carrier says no, so you really have nothing to lose. I wish you the best, and I hope that I clarified this topic for you.
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