Choosing to purchase an annuity has become a very popular option for those nearing or in their retirement years; by paying a lump sum, the buyer then providers themselves with a steady source of income over the rest of their life. It is, technically, viewed as a type of insurance policy; although the buyer pays a lump sum, the insurer then guarantees to pay an income for the rest of the person's life, however long this may be.
While there are a number of reasons that annuity rates differ, one factor that affects rates dramatically is the life expectancy of the buyer. Due to the fact that the insurance companies promises to pay an income for the remainder of the buyer's life, they calculate a life expectancy which they can then use to determine rates, based on health and other factors. Someone with a longer life expectancy might expect their annuity rates to be lower as the insurance company must pay out for longer.
Those with medical conditions such as heart disease or obesity, and qualify for an enhanced annuity, are also expected to live for a shorter amount of time. This means that there rates would also be higher than someone with good health; they will cost the insurance company less in the long term as the company will need to pay the income for a shorter amount of time.
There are also other reasons for a difference in annuity rates. Men often have a shorter life expectancy than woman, which also means that on average, men have slightly higher annuity rates than women. Rates are also calculated by postcode; according to government statistics, certain areas have higher or lower life expectancies, and annuity rates take this into account. Someone living in a 'healthier' postcode could expect to have a lower annuity rates as their life expectancy may be longer than someone living in less 'healthy' area.
There are other external factors that can also affect your annuity rate, as well as your life expectancy and any medical problems. Annuities are indexed to government bonds, and therefore the yield on these bonds will also affect your rates - it is also worth remembering that if you are purchasing an annuity from a pension fund that inflation will gradually affect your fund over the years.
While there are a number of reasons that annuity rates differ, one factor that affects rates dramatically is the life expectancy of the buyer. Due to the fact that the insurance companies promises to pay an income for the remainder of the buyer's life, they calculate a life expectancy which they can then use to determine rates, based on health and other factors. Someone with a longer life expectancy might expect their annuity rates to be lower as the insurance company must pay out for longer.
Those with medical conditions such as heart disease or obesity, and qualify for an enhanced annuity, are also expected to live for a shorter amount of time. This means that there rates would also be higher than someone with good health; they will cost the insurance company less in the long term as the company will need to pay the income for a shorter amount of time.
There are also other reasons for a difference in annuity rates. Men often have a shorter life expectancy than woman, which also means that on average, men have slightly higher annuity rates than women. Rates are also calculated by postcode; according to government statistics, certain areas have higher or lower life expectancies, and annuity rates take this into account. Someone living in a 'healthier' postcode could expect to have a lower annuity rates as their life expectancy may be longer than someone living in less 'healthy' area.
There are other external factors that can also affect your annuity rate, as well as your life expectancy and any medical problems. Annuities are indexed to government bonds, and therefore the yield on these bonds will also affect your rates - it is also worth remembering that if you are purchasing an annuity from a pension fund that inflation will gradually affect your fund over the years.
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