Please bear with me here: although this may seem a bit "inside baseball," there's actually a larger point to be made (and we'll get to it shortly).
In brief, annuities are simply money vehicles issued by insurance carriers. They look and act a lot like CD's, with two important distinctions: first, the interest builds up on a tax-advantaged basis, and when the time comes, the money can be paid out in an income stream that you can't outlive.
Because they're essentially savings accounts (although some are designed to mimic mutual funds and the like) they're not generally underwritten; that is, the carrier doesn't really care if you run marathons or are on chemo.
But this creates an interesting problem (and the point to which I alluded): the fact that one's lifestyle plays no part puts some folks at a disadvantage.
How's that?
Well, let's say you smoke a pack or two a day. The annuitization factors (the values the carrier uses to determine the amount of that lifetime income stream) don't take that into account, but you're more likely to receive much less income than your non-smoking twin. That's because you're more likely to die sooner than he is, and thus receive much less value. Same would hold true for someone already being treated for cancer or AIDS.
Which is why I was so intrigued by this email from our friends at Issue Insurance:
"Explore the Advantages of Underwriting for Clients in Poor Health."
Apparently, Genworth is rolling out an underwritten annuity product that "can work in favor of those who are in poor health or in need of care now." It'll be interesting how that does, and if other carriers follow suit.
Kudos, Genworth!
In brief, annuities are simply money vehicles issued by insurance carriers. They look and act a lot like CD's, with two important distinctions: first, the interest builds up on a tax-advantaged basis, and when the time comes, the money can be paid out in an income stream that you can't outlive.
Because they're essentially savings accounts (although some are designed to mimic mutual funds and the like) they're not generally underwritten; that is, the carrier doesn't really care if you run marathons or are on chemo.
But this creates an interesting problem (and the point to which I alluded): the fact that one's lifestyle plays no part puts some folks at a disadvantage.
How's that?
Well, let's say you smoke a pack or two a day. The annuitization factors (the values the carrier uses to determine the amount of that lifetime income stream) don't take that into account, but you're more likely to receive much less income than your non-smoking twin. That's because you're more likely to die sooner than he is, and thus receive much less value. Same would hold true for someone already being treated for cancer or AIDS.
Which is why I was so intrigued by this email from our friends at Issue Insurance:
"Explore the Advantages of Underwriting for Clients in Poor Health."
Apparently, Genworth is rolling out an underwritten annuity product that "can work in favor of those who are in poor health or in need of care now." It'll be interesting how that does, and if other carriers follow suit.
Kudos, Genworth!
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