The impaired risk annuity continues to be a niche product, although the use of that product may be changing, according to interviews with National Underwriter.
These annuities are single premium immediate annuities sold to people having serious medical conditions. Because the health impairment shortens longevity, the annuity makes a larger payout than is typical for traditional annuities.
Currently, approximately nine companies offer impaired risk annuities out of approximately 100 companies which offer single premium immediate annuities, according to Bob Hupf, first vice president and actuary with Mutual of Omaha Cos., Omaha, Neb. United of Omaha, a unit of Mutual of Omaha, is the carrier that writes these annuities for the company.
The barrier to entry for this market is on the underwriting side, Hupf explains. Mortality can be an art, with estimates differing among companies, he continues.
To date, the product has been used largely by life insurance agents to fund a life insurance policy, he adds.
Money is borrowed from a financial institution to fund the impaired risk annuity, and then income from the annuity is used to pay back the institution and pay the premium, Hupf adds.
At death, the death benefit pays off the remainder of the loan and also provides a benefit to the deceased’s estate or beneficiaries, he continues.
If the agent is using an SPIA, then the focus is on trying to shield people, according to Hupf. He speaks of the investor-owned life insurance market, which he says Mutual of Omaha participated in for a brief time. The company has since left that market, because “it was not a fit,” he adds. In that market, the annuity protects the investor, according to Hupf.
Mutual of Omaha is considering entering the impaired risk annuity market for life settlements, he adds. The impaired risk annuity could be used by those purchasing the life settlement, he continues.
Michael Tessler of Brokerage Unlimited, St. Louis, says that immediate annuities, and in particular impaired risk annuities, are not popular with many financial planners.
For planners who do look at them for clients, there is more use of them in the middle to lower-middle end markets, he adds.
But, those planners working with higher net worth clients will most likely not use the product, he says.
There can be a big difference in pricing, Tessler notes. He says that he would guess that there is up to a 10% difference on a 10-year certain annuity, depending on the carrier. And, he adds, rates in that market are very sensitive to any changes in the marketplace and they change very regularly.
The differences are not among the top two or three carriers in the market. Rather, they are showing up among those companies under that tier that is not really focusing on that market, he explains.
The barrier to entry for this market is on the underwriting side
To date, the product has been used largely by life insurance agents to fund a life insurance policy