What Is an Underwritten Annuity?
Many seniors lack long-term insurance, leaving them vulnerable to financial challenges in the face of declining health or an impending need for care. However, a viable solution exists in the form of medically underwritten single-premium immediate annuities, otherwise known as SPIA’s. Unlike conventional immediate annuities that calculate payouts based on age and gender, medically underwritten annuities factor in an individual’s health, resulting in higher monthly payments for those with more severe health conditions.
For seniors facing serious health issues, medically underwritten annuities can potentially be of great significance, especially when long-term insurance is unattainable due to illness. These annuities may represent the only means of bolstering financial support to meet escalating care expenses.
Medically underwritten SPIA’s distinguish themselves from long-term-care insurance by eliminating the need for claims filing or ongoing eligibility assessments. The flexibility of using the funds for any purpose, including care expenses or general living costs, adds to their appeal.
Medically underwritten SPIAs are offered by a limited number of insurers, and industry experts anticipate growth in the market as the baby boomer population ages.
Eligibility for higher payouts under these annuities requires proving a life expectancy shorter than standard actuarial tables indicate. Insurers will do an assessment by a nurse or use a detailed health questionnaire and medical records. The process aims to assess the individual’s health accurately.
The financial benefits of medically underwritten annuities become evident compared to traditional annuities for individuals in poor health. People in poor health can get significantly more income than they would receive from a traditional SPIA. Consider a 75-year-old widower with heart disease, diabetes, and dementia who needs help with some daily activities such as bathing. He needs $30,000 in annual income to help cover his care expenses. If he opts for a traditional SPIA that pays income for his life only, with no inflation protection, he’d have to spend roughly $336,000 to get that much income. But with an underwritten SPIA, he would get $30,000 in annual income for just over $150,000. Generally speaking, if someone is in poor health, they can get a quarter to a third more from this annuity than from a traditional non-underwritten SPIA However, these annuities are not suitable for individuals in good health or those with extremely short life expectancies, as the upfront premium may not justify the potential benefits.
Insurers may offer optional features such as inflation protection and enhanced death benefits, but these extras can reduce monthly income. So, it’s important to look at the individual situation and make the best choices for that situation.
