Impaired Life Annuities

With annuity rates near an all time low, it has never been more important to shop around for the best annuity rate.
For those with unhealthy lifestyles or life reducing medical conditions, the good news is that smoking, being overweight or having a serious illness can actually improve your wealth.


Bad Health is good for Your Wealth?

This is because life insurance companies reckon that if you smoke or are unhealthy, you're going to die earlier than someone who is healthy. So they're happy to pay you more each year in the form of an "enhanced annuity" because they won't have to pay you for as long as someone with a normal life expectancy.
An annuity is simply an income for life, paid to you by an insurance company in return for your pension fund. The income can be paid monthly, quarterly, six monthly or annually.

All annuity rates are calculated according to your sex and age at retirement. But enhanced annuities can take other factors into account such as reduced life expectancy, lifestyle, where you live and your occupation.
There are three types of enhanced annuities:

• "lifestyle annuities" which depend on your lifestyle - such as whether you smoke, are overweight, have diabetes or high blood pressure;

• "select annuities" which pay you more than the standard annuity rate if have lived in the north of the England (roughly north of the Bristol/Wash line) and worked in a manual occupation all your life. You have to meet both these criteria in order to be eligible.

• "impaired life annuities" which depend on you having a life-reducing medical condition such inoperable cancer, advanced Parkinson's disease, cirrhosis of the liver, severe stroke or heart failure.

The big difference between the first two and the third is that to buy a lifestyle annuity you simply complete a health/lifestyle questionnaire, whereas impaired life annuities require a medical report from your doctor.

To take advantage of these better rates, you will need to obtain the value of your pension fund from your existing provider and ask an annuity specialist to quote you the best rates on the market for your condition or lifestyle.

Open market options

Seeking out the most competitive rate on the market in this way is called taking the "open market option."

Few people realise that at retirement you don't have to accept the annuity rate offered by the insurance company your pension was invested with during your working life.

In fact, only one in 10 people bothers to take the open market option - either through ignorance or inertia - even though you will almost always get a better annuity rate by shopping around.

For instance, a 60 year male smoker with a £100,000 to invest could get an annual income of £8,352 from a smoker's annuity whereas a standard annuity would pay only £7,728 - about 7.5% less.

Similarly, for a 65 year old man investing £50,000 and who is suffering from advanced Parkinson's disease, the Pensions Annuity Friendly Society (PAFS) quotes an annual income of £11,195 whereas a standard annuity would pay around £5,000 pa.

"The actual increase you receive over the standard rate will depend on an up-to-date medical report on your condition, but it could be up to 30% more, depending on the severity of your medical condition," says Alan Smith of Capital Asset Management .(www.camfinancial.co.uk)

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