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Annuity Rates Higher for the Poor and Sick

In the Financial Times article “More providers offer post code annuities,” Josephine Cumbo describes the process of determining annuity rates based on Canadian post codes.  Insurance providers offer better annuity pricing to those living in less affluent areas going on the assumption that they will live shorter lives.  This also applies to investors that are smokers or have medical conditions hinting at a shorter life expectancy.  Canada Life is one company who has adopted this policy.  They offer annuity rates up to 7 percent lower to investors that live in a post code considered to have wealthy and healthy citizens.  Since annuity products pay a stream of income over one’s lifetime in exchange for a lump sum down payment, a longer life expectancy means more years receiving that income stream.

Three other companies who are already using this mapping system are Prudential, Aviva, and Legal & General.  All of the post code mapping systems are diligent about the financial breakdown.  They do not look at the whole city but break down their analysis on a street by street basis in some areas, realizing that there are financial differences within neighborhoods.  Variable and fixed annuity rates ranged anywhere from 3 to 7 percent in the city that was reviewed.  The poorest neighborhoods typically get annuity rates of around 3 percent more than the more affluent neighborhoods.  It is important to fill out the medical questionnaire associated with your annuity purchase for this reason.  Investors living in a wealthy neighborhood who have poor health will receive a higher rate because of the health issue.  Without properly completing the medical questions, that investor would be subject to the lower rates associated with the wealthy neighborhood.

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