Impaired Annuity

An "Impaired Annuity" is a type of annuity designed specifically for individuals with a shorter life expectancy due to health issues or chronic conditions. In the context of financial planning and retirement, impaired annuities are offered by insurance companies to provide higher periodic payments than standard annuities, recognizing that the annuitant (the person receiving the annuity payments) may have a reduced lifespan because of their health condition.

Key aspects of Impaired Annuities include:

1. Higher Payments: Because the insurer anticipates making fewer payments due to the annuitant's reduced life expectancy, each payment is higher than it would be for a standard annuity purchased with the same initial investment by a person with average health.
2. Medical Underwriting: To qualify for an impaired annuity, the applicant must undergo medical underwriting, which involves providing medical records and possibly undergoing medical examinations. The insurer uses this information to assess the applicant's life expectancy.
3. Types of Conditions: Various health conditions can qualify an individual for an impaired annuity, including serious heart conditions, cancer, diabetes, and other chronic diseases that can shorten a person's life expectancy.
4. Tax Implications: Like other annuities, the tax treatment of impaired annuities in Canada depends on the source of the funds used to purchase the annuity (e.g., registered vs. non-registered funds) and the structure of the annuity payments.
5. Financial Planning Tool: Impaired annuities can be an effective tool for financial planning, especially for individuals with health issues. They provide a guaranteed income stream that is often higher than what could be obtained from standard annuity products.
6. Comparison and Shopping Around: It's important for individuals considering an impaired annuity to compare offers from different insurers, as underwriting criteria and annuity rates can vary significantly between companies.

Impaired annuities recognize the unique financial planning needs of individuals with health impairments, offering them a way to maximize their retirement income based on their specific life expectancy. This type of annuity provides peace of mind through a steady income stream that is adjusted to reflect the individual's health condition.