Rated Single Premium Immediate Annuities

Rated SPIAs keep you in the financial race with a medical condition instigating higher payouts.
Rated SPIAs keep you in the financial race with a medical condition instigating higher payouts. By Stewart Cohen/Pam Ostrow / Blend Images / Getty Images

What is the true value proposition of a lifetime income stream annuity guarantee?

When you receive a lifetime income stream from an annuity, the primary pricing mechanism is your life expectancy at the time you take the payments.  You are, in essence, placing a bet with the issuing annuity carrier that you will live longer than the carrier thinks you will.  You are betting that you will outlive your life expectancy, and if you do, the annuity company is on the hook to pay you regardless of how long you live.

That is the true value proposition of a lifetime income stream annuity guarantee, and annuities are the only product on the planet that provide this benefit.

Why do Rated SPIAs have higher payout values?

When considering a Rated SPIA the annuity company determines and verifies that your actuarial age is older than your actual age. In other words, due to your medical condition, your life expectancy is less than people without that condition at the same age.

With that strategy foundation being established, a Rated Single Premium Immediate Annuity is actually doing the opposite of a typical SPIA offering. A Rated SPIA is calculated using proof submitted to the annuity carrier that your life expectancy is less than the actuarial tables predict. The shorter your life expectancy, the higher the payout. Annuities are usually guaranteed to be issued, but Rated SPIAs require medical underwriting to prove that your life expectancy should be less in order to secure a larger income guarantee.

Usually only healthy carriers offer Rated SPIAs, but even those carriers are limited.

For people with serious medical conditions, Rated SPIAs can provide that increased income stream that can help enhance your lifestyle during the remaining years of your life. 

Most of the carriers who offer Rated SPIAs are highly rated and financially strong from a claims paying ability standpoint, although the carriers that do offer Rated SPIAs are limited and have decreased over the past few years.

Your choices are somewhat limited when compared to other annuity types.

It does take time to work through the paperwork involved to be approved for a Rated SPIA.

The underwriting process to get approved can be cumbersome and frustrating, in addition to taking a very long time. One of the frustrations that I have witnessed with clients trying to get approved for a Rated SPIA is that the annuity carrier might not think you are as unhealthy as you think you are. I know that sounds harsh, but I have seen people whom I thought should qualify for a Rated SPIA get declined by the carrier. I do think it’s worth the underwriting effort to find out, but I always prepare my clients by letting them know that it might not be the slam dunk they think it should be.

From an underwriting standpoint, most Rated SPIA carriers only require your recent medical records without you having to meet with a nurse/paramedic or go through any specific examinations. That does not preclude the annuity carrier from requesting this, but most Rated SPIA approvals are determined from the medical records provided and requested. Most companies require you to provide original records, and the more thorough you are, the better chance you have of being approved.

Rated SPIAs are pro-customer products to explore if you are experiencing declining health.

From an estate planning standpoint, sometimes Rated SPIA enhanced income streams are used to secure life insurance.

It might make sense to apply for a Rated SPIA if you are considering a typical Single Premium Immediate Annuity (SPIA) strategy, and you have a serious medical condition. If you are declined for the Rated SPIA, then you can always buy the typical SPIA strategy. Whatever your health condition an annuity strategy can help you build an income floor that will last the rest of your life, and if structured to do so, it will last the lifetime of your spouse as well.