Enhanced annuities are a different kind of conventional annuity. Just as it is with a standard annuity, the providing company takes it on themselves to offer you guaranteed income for the rest of your life. The company offering takes on the risk while ensuring you do not run out of money in retirement.
However, it will take into consideration very detailed information regarding your health and lifestyle in order to offer you a properly personalized enhanced annuity deal.
Enhanced annuity pulls up your retirement income
By qualifying, you will be able to increase your retirement income by as much as 40% when compared to what is obtainable with the lowest standard annuity deals. The possibility of receiving more or less than this amount is dependent on the kind of health and lifestyle condition you may have.
According to experts, it is estimated that at least 60% of individuals in retirement may qualify for an enhanced annuity deal however, only a quarter of that population gets an enhanced annuity deal in the long run.
Why you must dislose all medical and lifestyle conditions you may have
When an annuity provider is considering what to offer in terms of enhanced annuity, their main focus is on all of the factors that directly or indirectly has in impact on how long you are expected to live for.
Some of the factors they consider are your smoking habit, your drinking habit, your general lifestyle and your medical history. When all of these are calculated, they will be able to put together a clear picture of your life expectancy based on these calculations.
In the life insurance industry, any health problems you have will cost you more in premiums to be paid to the company but with the annuity industry, you will be offered enhanced annuity contracts which will involuntarily mean higher incomes in retirement. It is so because the company offering the enhanced annuity make judgments about your life expectancy based on your lifestyle and health and all of these are factored into their calculations.
In comparison to the lowest standard annuity available, enhanced annuities will offer a 20% increase in income for minor conditions, up to 30% for moderate conditions and up to 40% or even higher for serious medical conditions.
Get a deal specifically mean for you
All the deals offered by providers are put together on an individual basis using information that has been collected about the individual in question. This explains why it often takes longer to set up an enhanced annuity deal in comparison to the standard annuity types. By being open and clear about your condition, the provider will have a clear view of what your condition is like.
Advantages of enhanced annuities
• There is the rest of mind that comes with knowing how much you will receive for the rest of your life and that the funds will not run out.
• The annuity you will be offered by the provider will invariably be higher than what is obtainable with a standard annuity. Qualifying for it may amount to as much as 40% increase in comparison with the lowest possible standard annuity. Whether you will receive more or less than this amount is dependent on your specific health or lifestyle condition.
• You are allowed by law to take out 25% of your pension pot as tax free lump sum. This amount is known as the pension commmentment lump sum amount and can be withdrawn before you hand over the pension pot to purchase the annuity contract.
• You will be able to include options that will allow you to protect the income against inflatement or provide for your beneficies. You can equally elect to have your income continuing for a guaranteed period of time after you have passed on. However, if you select these options you will receive slightly lower income.
Disadvantages of enhanced annuities
• Once you are secured, it is not possible for you to change it. So even if your medical condition worsens, you will have to make do with the amount you have been locked to. From the sunset, you may decide to increase your annuity income in line with the inflation figures but this means accepting reduced initial income.
• If you pass on immediately after taking out an annuity contract, the amount used in funding the purchase can not be returned even if you have not received up to half the invested amount.
The process of getting an enhanced annuity is elaborate so you will need to talk to an annuity expert.