Enhanced and Impaired Annuities Guide
Posted on November 11th, 2012 in All Posts, Annuities, Retirement Planning.
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My Guide to Enhanced / Impaired Annuities
Over the last few years the enhanced and impaired annuity market has grown significantly. The reason for this is due to several factors. There is more people retiring as the baby boomers are now retiring, more people are becoming aware of the open market annuity option, new providers are providing enhanced or impaired annuities and training IFAs on the benefits and features of these type of annuity
As this market is growing buy still very under utilised, I decided to add this post to the blog. I believe many consumers are losing out by either not shopping around in the first place or not disclosing medical conditions or lifestyle choices to annuity providers.
Many clients that I speak are not even aware that such as enhanced annuities exist and therefore losing out on the extra income that could be theirs.
Related Links
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An Introduction to Enhanced / Impaired Annuity Rates
The difference between enhanced and impaired annuity rates.
Many clients and financial advisers refer to enhanced or impaired annuities and the difference between the two has become blurred over recent years. To keep things simple we will differentiate between the two:Enhanced Annuity – This type of annuity is offered to a retiree who perhaps takes part in a lifestyle that the insurance company expects will shorten their life. Therefore the insurance company will provide a bigger income for the annuity than they would for a standard retiree. Typical lifestyle factors that will increase the income include Smoking, Heavy Drinking and clients that may be over weight and therefore have a high BMI.
Impaired Annuity – Again this type of annuity involves the life insurance provider offering a bigger income due to them expecting the retiree to have a shorter life than the standard client. However the reasons for the insurer offering a bigger income is related to health and medical history instead of lifestyle. However in many cases the rate given is calculated by combining lifestyle questions along with medical history for example a smoker who has cancer. Typical medical conditions that will increase the annuity income include high blood pressure, Diabetes, Angina, Asthma, Stroke plus many other conditions.
Enhanced / Impaired Annuity Definition
An annuity that pays out a higher income due to the applicants health or lifestyle.
5 Common Reasons You Could Get an Enhanced Annuity.
- You may be a smoker or heavy drinker.
- You may be overweight and therefore have a high BMI.
- You may have high blood pressure with hypertension.
- You may have diabetes of varying degrees of seriousness.
- You may have a much more serious illness enhanced annuity provider cover thousands of well known and not so well known medical conditions.
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Providers of Impaired or Enhanced Annuities
Compare Providers
The table below shows the providers that currently offer enhanced annuity rates. This table and the providers listed in it is constantly changing. The information below was gathered from provider literature on the 11th of November 2012. Needing Advice.co.uk takes no responsibility for the accuracy of the information. To check which is the most suitable policy and provider for you ring me Damian on 07912 076990.| Annuity Provider Name | Provider Logo |
| Legal and General |  |
| Aviva |  |
| Canada Life |  |
| Just Retirement |  |
| LV |  |
| MGM Advtantage |  |
| Partnership |  |
| Prudential |  |
Additional Enhanced Annuity Options
Pension Commencement Lump Sum
When you buy an annuity the fund you have built up from the pension can be used in full or you can take a 25% tax free cash yo use on whatever you like. If you take the 25% tax free cash then the annuity you purchase will have a smaller income. That been said the majority of people tend to take the maximum cash. The cash it self can be invested to provide immediate liquidity that you may need. It may be used to pay off any outstanding mortgage balance, go on holiday or do home improvements.You will need to consider what interest rate you could get by investing the tax free cash. You will need to take into account the level of your existing savings and whether you need the tax free cash. You may consider whether or not you will need any large cash purchases in the near future and whether this could be used or whether you have other savings available.
Frequency of Payments
Most annuity providers allow you to choose how often you get paid. Normally this can be Monthly, Half Yearly or Annually. In addition to the frequency you can choose whether you want to be paid in advance i.e. as soon as the annuity started or in arrears at the end of the payment term you have chosen. If you have a long payment frequency and the payment in arrears the monthly income will be bigger. However you will need to think about what you will live off in the meantime so this option is not an option for everyone.Joint Annuity for Dependants
The biggest risk that is present with an annuity is that on your death unless you have selected either a guaranteed period or a dependant’s or spouse pension then the payments will stop. Your spouse or dependants relying on that income will then struggle.The solution is by taking a joint or dependent annuity. Then on your death the monthly income will instead be paid to them. However by choosing this option you will have smaller income from the enhanced annuity than you would if you did not take this option. Another factor is whether you would give you spouse, dependant or partner 50% or 100% of the annuity. Again this will ultimately affect the income you will start with.
Guarantee Period
As mentioned above the risk of an annuity is that once you die then the income will stop. Now if you are applying for an enhanced life annuity then maybe you are doing so due to being a smoker or overweight you may also be suffering from more serious medical conditions. This could mean that your life expectancy is quite low. In a case like this then if you are not applying for a dependant or spouse annuity then instead you apply for an annuity with a guarantee period.Many enhanced annuity providers will allow you to buy an annuity that has a built in guarantee period. Normally the guarantee period can be set to between 1 and 10 years. The guaranteed period ensures that once you die the income is then paid out until the end of the guarantee term. You will need to decide who will be the beneficiary of the income either through the annuity provider or your will.
If you continue to live past the guarantee period the the income also continues until you die and then finishes. By taking a guarantee period the income that you will receive will be smaller but at least the guarantee ensure that the income will be paid for a minimum term.
Inflation Protection
A conventional annuity is a fixed income and as inflation over the years can erode the buying power of the income. To protect against this you can choose to increase the income in line with the retail price index. Some annuity providers call this option escalation. By adding the option of escalation you will get a smaller annuity in the beginning however this will increase over time and in periods of high inflation will protect your incomes buying power.Make an Enquiry ...
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Example Enhanced and Impaired Annuity Rates
1 & 2 MGM Advantage September 2012, 3 Avelo Exchange September 2012.
The example impaired / enhanced annuity rates are to give an indication of potential rates. The different factors that make up annuity rates is complex and varies from retiree to retiree. Other factors that are not so obvious such as the post code area where the client lives can also affect the rate offered.
To compare providers and contact me and I can get you no obligation quotes.
The example impaired / enhanced annuity rates are to give an indication of potential rates. The different factors that make up annuity rates is complex and varies from retiree to retiree. Other factors that are not so obvious such as the post code area where the client lives can also affect the rate offered.
To compare providers and contact me and I can get you no obligation quotes.
Possible Medical Conditions that Could Qualify.
How to Apply for an Impaired or Enhanced Annuity?
Direct or Financial Adviser
A few of the enhanced annuity providers may offer deal direct to the public. However the majority of impaired and enhanced annuity providers only offer deals through intermediaries. Therefore I would suggest you either use myself or another financial adviser if you already have an adviser.The process is quite simple. You make an enquiry on the website or ring me. I then arrange a convenient time when I can carry out a fact find over the phone. I will then fill in a common quotation form and post this off to the enhanced annuity providers. They will then get back to me with their most competitive rates for your unique conductances. I will present the enhanced rates to you in clear jargon free language so you can make an informed decision on your retirement.
Make an Enquiry ...
Click to Quote Get an Enhanced Annuity Quote
Ring Me Damian on 07912 076990
Click Here to Email
Nice post regarding Enhanced and Impaired Annuities Guide. Thanks for sharing.