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Old 09-01-2011, 04:32 AM
davemunj davemunj is offline
 
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Default underwriting annuities

Is any underwriting done on annuities? If so what type?
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Old 09-01-2011, 06:52 AM
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Usually no. The company normally assumes that the person wanting to buy the annuity is in very good health, since such people have the most incentive to buy annuities and present the highest expected cost to the company.

Occasionally, if the applicant claimed he should get a higher monthly benefit than normal from his premium because he was disabled for example, a company might consider that request and might do underwriting to verify how bad his health was. Many companies wouldn't even bother competing in that substandard market, and those who do may only consider that effort justified on large policies.

As an example: structured settlements, where as a result of a lawsuit someone seriously injured has won large benefits payable for life. The loser of the lawsuit may want an insurer to take on the risk. The insurance company would consider the recipients health. It might not be able to do its own additional medical tests on the recipient, but its underwriters would consider what is known about the injuries and health. That's a specialized market.
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Old 09-01-2011, 09:51 AM
JoJo JoJo is offline
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Interesting story. No underwriting on annuities led to the Stranger Owned Annuity scandal on Variable Annuities. Some VA’s had a feature that paid off the greater of the account value or premiums + X%
So, a group or individual investor would find a terminally ill person, pay a large premium and wait for their payday. Usually the broker was in on it too, as they got a huge up front commission without a chargeback.

In the best case scenario, assuming the stock market earned at least X% is that the company was out the commission.
In the worst case scenario, the stock market dropped by Y%, the company was out commission + X% + Y%.

For the investor + broker, assuming a death occurs after about a year, they were guaranteed roughly a 10% rate of return.
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Old 09-01-2011, 10:14 AM
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Hydraskull Hydraskull is offline
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Interesting story. No underwriting on annuities led to the Stranger Owned Annuity scandal on Variable Annuities. Some VAs had a feature that paid off the greater of the account value or premiums + X%
So, a group or individual investor would find a terminally ill person, pay a large premium and wait for their payday. Usually the broker was in on it too, as they got a huge up front commission without a chargeback.

In the best case scenario, assuming the stock market earned at least X% is that the company was out the commission.
In the worst case scenario, the stock market dropped by Y%, the company was out commission + X% + Y%.

For the investor + broker, assuming a death occurs after about a year, they were guaranteed roughly a 10% rate of return.
I think a quick suitability review would have covered that risk, no need for a medical underwriting department to prevent that sort of scenario.
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Old 09-01-2011, 10:19 AM
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A company that already has a medical underwriting department to support its life insurance operations would be much more likely to underwrite some life contingent policies.

As Gandalf said, it would only be on policies where the insured has a significantly high mortality risk. Common on structured settlements, not so common on your run-of-the-mill life contingent income annuity.
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Old 09-01-2011, 02:18 PM
MetsMan MetsMan is offline
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In the UK, where until this year it was compulsory to take an annuity from your defined contribution pension before age 75, there is a large and well developed market for substandard or enhanced payout annuities. The preliminary underwriting is often carried out with an online questionaire, and back up medical evidence may be required.

http://www.enhancedannuities.org/
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