When poor health saves you money

When it comes to taking out life insurance, underwriting for the cover usually means that a prior illness results in a higher premium.

However, when it comes to purchasing an annuity income in retirement, few life insurance companies undertake underwriting, yet this could provide you with a higher income from your annuity.

When you buy a life or guaranteed annuity, the monthly income you receive will be determined by how long the insurer expects you to live, as they are guaranteeing you an income until your death.

Most insurance firms will calculate your longevity based on average statistics.

The average statistics are that women will outlive men, so women generally receive a lower income from their annuity than a male counterpart as the money has to last longer.

While “averages” could benefit someone who has a family history of living to 110, it seriously prejudices someone who has suffered from ill-health and whose life expectancy is lower than the average.

Justine Wyatt, legal and compliance executive at specialist retirement income company Just, says it is beneficial that retirees who buy an annuity income at retirement are medically underwritten at the inception of the policy to determine whether they qualify for a higher monthly income.

Wyatt says 63% of Just’s cases quoted on to date were medically underwritten and qualified for a higher monthly income at retirement, including retirees who were diagnosed with breast cancer.

In an existing Just breast cancer case study, a retiree aged 64 qualified for a 22.7% higher monthly income as a result of being medically underwritten.

She has smoked eight cigarettes a day for the past 42 years. She was diagnosed with breast cancer three years ago.

She completed surgery, a course of chemotherapy and radiotherapy and is on a hormone suppressant.

She approached Just for a lifetime income that targets increases in line with inflation.

The retiree had a purchase sum of R1 000 000 at retirement.

She would have received a starting annuity income of R6 148 a month without underwriting. After underwriting this increased to R7 546 a month.

“It is already difficult to live within your means at retirement and even more so if you have additional medical expenses.

"It is key that retirees make the most of their retirement savings by securing the highest possible annuity income.

"This can be achieved by enhancing their monthly income through medical underwriting when deciding on the right investment option at retirement.

“It is best when reaching retirement to have a meeting with an accredited financial adviser who will help you choose the right options for your circumstances,” says Wyatt.

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August 2020

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