Substandard Health Annuity

Substandard health annuity definition


A substandard health annuity is a variety of straight life annuity available to individuals with reduced life expectancies due to serious medical ailments. Straight life annuities are fairly straightforward insurance products that make periodic distributions to account holders until their death; no beneficiaries can be named for these annuities, and payments stop immediately upon the account holder’s death. Substandard health annuities follow these same rules, but make larger payments since the account holder’s life expectancy is lower than the average healthy individual. Generally, substandard health annuity policies are funded by monthly premiums; however, in some cases a lump sum is paid in advance of the first annuity distributions and serves as full payment for the outgoing distributions of the annuity during the account holder’s lifetime.

How substandard health annuities work


Generally, applicants seeking a substandard health annuity must provide proof of their medical conditions; this usually requires a battery of medical tests including urinalysis, X-rays, and blood tests. The results of these tests are collected by the insurance underwriter, who decides whether or not the applicant is a good risk for the company. If approved, the substandard health annuity can be funded by fixed or increasing monthly payments or by a one-time payment. In nearly all cases, the resulting substandard health annuity is subject to the same policy guidelines as a normal straight life annuity; this means that no beneficiaries can be named and that the annuity is valid only for the account holder’s lifetime.

Advantages of substandard health annuities


Substandard health annuities provide a stable source of income for individuals who might not otherwise be able to provide for their own financial needs during a prolonged illness or disability. While annuities are typically more expensive than other forms of insurance, substandard health annuity plans are a relative bargain in the annuity market. This is due to the reduced life expectancy and, thus, reduced payoff duration for the annuity provider.

Setting up a substandard health annuity


It’s usually advisable to consult a financial planning expert in order to set up a substandard health annuity in order to ensure that sufficient funds are available for the duration of the payout period. Substandard health annuities are intended to provide income for seriously ill or terminal individuals and are not available to relatively healthy applicants; for this reason, it is even more crucial to ensure that adequate income is available to provide support during the last months or years of the account holder’s life. For individuals facing serious health difficulties, substandard health annuity plans can offer hope for a comfortable lifestyle and financial security despite their medical concerns.
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