IMPAIRED RISK ANNUITIES
I don't think most annuities- particularly during payout- are worthwhile for several reasons. First you lose access to the funds. (And you generally need more access to liquid money AFTER you retire than before.) Second, there is no offset for inflation. Third, returns from many companies may be dismal. (you must be able to use a financial calculator.) But if you are going to live a long time- longer than the actuarial lifetime used by the life insurance company- the return can go up substantially. And there are also times when some guaranteed payments are acceptable. But payments can actually be geared higher to begin with if you are NOT healthy. "Impaired risk underwriting is a process by which physicians or underwriters evaluate the life expectancy of an individual based on his or her health. Individual medical conditions are considered and a variety of risk factors including high blood pressure, heart disease and diabetes can result in a reduced life expectancy. The longer the life continent element of the annuity, the greater the potential savings to the consumer." (Or in layman's terms, if you are not going to live that long, your payout for dollar invested will be HIGHER than normal since you are going to die sooner than the average individual.) "So impaired risk annuities can benefit consumers by either reducing the premium for a specific stream of payments or by providing an increased benefit for the same premium."
As a matter of mechanics, annuity underwriting is normally simpler than life underwriting. The broker is asked to provide any available medical information that has a bearing on the clients health. The reports usually include the physicians report at the time of diagnosis, hospital discharge summaries, recent medical examination by physician and records of prior medical problems from physicians and hospitals. Assume a woman age 70 wants a guaranteed $1,000 a month for retirement. She is not in good health. Based on her medical condition, she has a life expectancy of a 74 year old. A regular annuity would cost $159,204. But due to her condition, it would cost only $142,560.
Or assume a man age 65 has a single premium deferred annuity with a cash value of $125,000. If he buys a single premium immediate annuity with a 10 year certain and life option, he would get $1,048 based on his life expectancy of a man at age 70 due to his medical conditions. At a normal person age of 65, he would have received $960.
Lastly, in mid 1996, I became aware that at least one insurer is now providing rated annuities for smokers. If you will stipulate that you had smoked at least 10 cigarettes a day for the last 10 years, they will provide payments based on a shortened actuarial lifetime.
A 65 year old male with a $100,000 investment would get $904 per month versus the non smoker at $800.