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November 02, 2008 at 02:00 PM
Obtaining life insurance for individuals with medical problems is not always simple. Underwriting can vary dramatically among carriers, creating a wide disparity in premium.
Of course, some life insurance companies may offer guaranteed issue life policies, which provide a much lower death benefit in the early years but at premiums that many clients consider too expensive for the budget.
Paying high premiums and receiving decreased death benefits need not be the norm or only solution, however. A reversionary annuity can be the solution for impaired risk as well as standard risk cases.
A reversionary annuity is a unique life insurance policy that offers a predefined lifetime income death benefit, rather than a lump sum death benefit as in traditional life policies. It is payable to the beneficiary upon death of the insured.
One distinctive aspect of this product is that the age and gender of the beneficiary can impact the premium, thereby permitting highly rated and sometimes severely medically impaired individuals to become insured. The older the beneficiary, the lower the premium. (See Chart 1.)
When it comes to impaired risks, a large concern for insurance companies is often the high probability of imminent death of the insured. As a result, many life insurance products will reduce the death benefit for an early claim. This is not the case with reversionary annuities.
Because the proceeds from a reversionary annuity are paid in the form of an income stream, the carrier is not exposed to a large cash outflow at one time–i.e., the time of death. Paying the death benefit over time permits the company to offer an attractive benefit, irrespective of when the insured dies.
In its basic form, the reversionary annuity provides no benefit if the beneficiary dies before the insured. However, there are several flexible options available with most reversionary annuities that make them attractive all the same. These include:
o A “return of premium” option. This pays out all premium deposits in the event the beneficiary does die before the insured.
o Limited pay scenarios. These enable the owner to have the policy paid up sooner.
o Minimum certain period for benefit payments. This ensures that payments will continue for a minimum period, even if the beneficiary dies soon after the insured.
