How is this possible?
The answer is that tantamount to premium financing, wherever the funders are dealing with mortality rate spreads, the institutional folks are also calculating these comparable spreads when it concerns immediate annuities and life insurance for seniors. This can appear labyrinthian, but it is actually similar to the stock market option game. One party believes the stock will go higher, and the other opines the direction is downward.
If you are between 70-85 years old, you might qualify for an immediate annuity that compensates you each month for your lifetime with no cash expenditure on your part whatsoever!
The sole prerequisite is that you are comparatively healthy and have not experienced a critical condition within the preceding few years, and you are a U. S. resident. You simply have to be physically capable enough to qualify for life insurance, though no policy will be issued.
An immediate annuity, like the name connotes, pays off income to you on a determined schedule (generally monthly) for a specified time period (usually for your lifespan). This plan might help you to not outlive your financial resources.
Think about this concept for one second; someone else is footing the bill. Can you conceive of some Institutional Funder consenting to put cash up in an immediate annuity, and make a percentage payable to you for life? Unbelievable? No. It's True! The senior antes up zero and the most extraordinary part is that the funder desires (and prays) that the Senior lasts forever and a day. This immediate annuity pays for a lifetime, so the longer a person lives, the more they, and the funder receive.
An immediate annuity pays off the Senior (for instance), based upon the life insurance company mortality table. A easy illustration is the following. Theorize that a behemoth Life Insurance Company presumes that you will live for 10 years and an Institutional Funder believes you will live a lot longer. That is where the funders arbitrage falls into play.
In the situation above, if the funder assumes you will hold up a few years longer than what the insurance company computes, they may believe that it merits the financing of the annuity for you, in the desire that you, the senior, live even longer than their life insurance counterparts mortality rates, and then fund the annuity themselves. Suppose the annuity is funded with $1 million dollars. The insurance company, for simplicity sake, thinks that the senior has 10 years to live. They will pay the Senior, based on those assumptions, approximately $100,000 yearly, plus whatever attributed interest.
Whenever the Senior passes on, generally the funding stops. The cash investment that the funder made reverts back to the insurance company, and no further funding continues. What if you live a longer time frame? The insurance company continues paying at those same rates for your total lifetime! The funder keeps getting their money monthly (well, they did foot the original bill), and you, the Senior, continue getting compensated as long as you are live.
Bear in mind that for the outset of these immediate annuities you will be receiving a more diminished monthly sum than after the Funder recovers his investment. At that juncture the financial tap truly opens up, and the Senior can anticipate significant monthly fundings.
The great thing about this for the Senior? Utterly no out-of-pocket expense whatever! What could be more favorable? Life insurance for seniors has come a long, long way.
Jon Thomas has been involved in finance and insurance, specializing in emerging growth markets since 1979.
He continues to write articles to help with life insurance for seniors , and immediate annuities