Helping a healthy client with his or her family financial security planning takes a great deal of time, effort and dedication under the very best of circumstances. Helping a client who has serious health problems achieve financial security can often prove substantially more difficult and time-consuming.
Sometimes helping an ailing client may seem impossible as you realize that a client with impaired health is caught between a rock and a hard place. On the one hand, while ill health can’t stop a client from investing available resources, returns required to meet the increased cost of living frequently associated with impaired health might not be available without the assumption of unacceptably high risk.
On the other, impaired health directly affects your client’s ability to purchase most types of personal insurance protection. Often, a client is simply uninsurable. Other times, the cost of available insurance protection is out of reach because your client is being offered coverage at higher, substandard premium rates.
Risky investments and lack of, or only high-cost, insurance protection don’t paint a pleasant financial picture for a client with impaired health. You ask yourself, what can I do to help? The answer is that there may be a great deal you can do when you consider the use of a rated or substandard immediate annuity to meet some of your client’s needs.
Just what is a rated annuity?
A rated immediate annuity is an immediate income annuity that factors in a client’s impaired health—and resultant shorter life expectancy—when calculating the periodic lifetime payment that can be purchased for a fixed premium, or when calculating the cost to provide a fixed lifetime payment—perhaps to cover life insurance, medical or long-term care policy premiums. They can only be written with a life contingency (payout for one or joint-lives), but can be advantageously coupled with period certain payments as well, as long as the period certain doesn’t go beyond the individual’s shortened anticipated life expectancy.
How can my client get one?
Rated immediate annuities are one of the two types of immediate annuities that require medical underwriting (the other being a temporary annuity, which guarantees income payments for a fixed period, such as 8, 10 or 15 years, or until the annuitant’s death, if earlier).
Although medically underwritten, it is not necessary to obtain a full-blown Attending Physician’s Statement to get a rated quote. A letter summary from your client’s physician will often be enough. It should include your client’s name, age, gender and date of birth, along with a history of his or her specific medical conditions, whether related or unrelated to the condition that seriously impairs your client’s life expectancy. The doctor should include date of diagnosis for each condition, changes in health since that time, a prognosis of your client’s life expectancy and any supporting data that can show the seriousness of your client’s condition.
Application for a rated annuity is different from application for any other insurance product. With a rated annuity, the worse your client’s health, the better the benefit he or she can obtain.
What benefit might a client expect?
Benefits are calculated under a rated annuity as if a client were older than his or her actual attained age. For example, suppose your male client were 65 and healthy and wanted to guarantee the cash flow to make annual life insurance premium payments of $7,500. He would pay $72,820.77.*
If your client’s health was impaired so that he was treated as if he were 70 instead of 65, his cost would be reduced to $64,404.88, 11.55% lower (based on anticipation of a shorter life expectancy). If your client’s age were rated up to 73, his payment would drop 19.17% from what it would have cost him if he were paid out as a healthy 65-year old. If he were rated up to age 75, his cost would drop by 24.51% to $54.973.81.
Conversely, you client might be looking to maximize his lifetime income. Suppose he had $100,000 to convert to a guaranteed income stream. A lifetime immediate annuity with a 10-year period certain payout guarantee would provide a healthy 65-year-old male $9,775.60. If he were rated up to age 70, his annual income would increase to $10,619.36; at 73, $11,175.27; and at 75, $11,549.62. These figures represent payout increases of 8.6%, 14.3% and 18.1%, respectively.
Similar reduced cost to guarantee a fixed income and increased payouts on fixed premium payments are available for females and joint-life cases.
In the end . . .
While it may not be possible to meet all the needs of an ailing client, it is—with the help of a rated immediate annuity contract—possible to either increase cash flow to meet the unusual expenses associated with ill health or to make it easier to meet fixed expenses, whether to pay insurance policy premiums or rent, food and utility bills.
*All payout rates are subject to change without prior notice.
Les Von Losberg, CLU, ChFC
First Vice President, Advanced Markets
Presidential Life Insurance Company of New York