Qualifiers For Impaired Life AnnuitiesIn order to best understand what impaired life annuities are, it's important to understand what a life annuity is. A life annuity is essentially is a contractual agreement between a buyer and seller for the purchase or sale of an insurance product. The seller is generally either a broker, an insurance company, or a financial institution that essentially exchanges a lump sum payment made by the buyer for a series of regular payments over time with interest. Annuities can be fixed where the annuitant is guaranteed never to lose his or her principle. If the buyer is feeling a bit more aggressive and is willing to take a bit more market risk, he or she can invest in a variable annuity where the principle is invested in the market and the value can fluctuate more drastically, but it has the potential for better returns. The impaired life annuity offers some unique features compared to the generic life annuity. For instance, if an underwriter at a life insurance company feels that the annuitant has a significantly lower life expectancy than others in their age bracket due to a serious illness suffered or if they are suffering from a serious disease, they can increase the rate of return from 20% up to 100% above the standard annuity rates. Obviously, in order to qualify, there needs to be a medical diagnosis where conditions present will inevitably reduce life expectancy. The duration of the payment stream on impaired life annuities issued to the annuitant by the life insurance company is completely unknown because it is essentially based on the date of death of the buyer. When death occurs the annuity contract automatically is terminated and the accumulation of funds is forfeited or paid out to any beneficiaries in place. This is why a life annuity is also referred to as a form of longevity insurance where the insurer takes on the risk of an annuitant's expected lifespan. However, by way of pooling many clients, the underwriter can somewhat mitigate this uncertainty during the underwriting process. A good portion of annuities now are purchased either for retirement purposes or through structured settlements from lawsuits.
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