Retirement Income

A higher income source for people with health problems

There’s a type of annuity that pays you more if your health profile is not good. This may sound strange, but here’s how it works:

SPIA, which stands for Single Premium Immediate Annuity, has long been a popular investment for obtaining a fixed income that cannot be outlived. With the lifetime payments option, an SPIA pays you a fixed monthly income for life.

Insurance companies calculate the size of your monthly payment based on standard life expectancy tables. Once calculated at the beginning, you continue to receive the same monthly amount, regardless of how long you live. Some companies take into account your individual health condition and use that information to calculate your life expectancy.

If your health records indicate conditions that could lower your life expectancy, this is factored into the monthly payment you receive and increases the monthly payment. You then receive this fixed monthly amount no matter how long you live.

Take this hypothetical example: A man aged 70 decides to obtain an SPIA. He deposits a $100,000 premium and based on his standard life expectancy of 16 years, his monthly payment is $729. He will receive this fixed monthly amount regardless of how long he lives. However, if he has a negative health profile and the insurance companies calculate his life expectancy at only 10 years, his monthly payment will jump to $1064. Because of the shorter life expectancy, this annuitant receives more income.

SPIAs have been most popular with single individuals who are not concerned with leaving an inheritance. That’s because, once the initial premium is paid, the SPIA cannot be surrendered for value. Rather, you receive a fixed monthly income for life.

For those people who like the idea of increasing their monthly income and do want to leave funds to heirs, you would use only a part of your assets for an SPIA and other assets can be designated for heirs. If you have a poor health history, you may be entitled to more income.

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