Substandard Annuities

Substandard annuities are medically underwritten annuities with increased monthly payments for people who are not in good health. If you want to buy an annuity but have certain health conditions, consider a substandard annuity.

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  • Written By
    Jennifer Schell, CAS®

    Jennifer Schell, CAS®

    Financial Writer, Certified Annuity Specialist®

    Jennifer Schell is a professional writer focused on demystifying annuities and other financial topics including banking, financial advising and insurance. She is proud to be a member of the National Association for Fixed Annuities (NAFA) as well as the National Association of Insurance and Financial Advisors (NAIFA).

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    Stephen Kates, CFP®

    Stephen Kates, CFP®

    Principal Financial Analyst for

    Stephen Kates, CFP® is a personal finance expert specializing in financial planning and education. He serves as the Principal Financial Analyst for, where he delves into industry trends to support consumers and financial advisors on wealth management, annuities, retirement planning, and investing.

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  • Edited By
    Lamia Chowdhury
    Headshot of Lamia Chowdhury, editor for

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

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  • Reviewed By
    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®
    headshot of Marguerita M. Cheng, CFP

    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®

    CEO of Blue Ocean Global Wealth

    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a CFP Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

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  • Updated: January 31, 2024
  • 4 min read time
  • This page features 5 Cited Research Articles

Key Takeaways

  • Substandard annuities are similar to single premium immediate annuities, but substandard annuities require medical underwriting.
  • To qualify for a substandard annuity, you must submit medical information to to qualify for an “age rating” that determines how much your payments will increase.
  • Medical conditions that may qualify you for a substandard annuity include Alzheimer’s, cancer, diabetes, muscular dystrophy and Parkinson’s. 

What Is a Substandard Annuity?

A substandard annuity, also known as an impaired risk annuity or age-rated annuity, is a type of annuity that pays out a higher monthly payment for people with certain health conditions. 

Generally, annuity customers are in good health and have a relatively high life expectancy. In most cases, a primary goal of purchasing an annuity is creating a guaranteed income stream to address the risk of running out of money in retirement.

But those who aren’t in good health can still benefit from the predictable income of an annuity. Substandard annuities offer people with health conditions that shorten their life expectancy the opportunity to receive guaranteed payments from an annuity.

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The substandard annuity works much like a single premium immediate annuity (SPIA) and has many of the same benefits and drawbacks. When you purchase a substandard annuity, the insurance company converts your lump-sum premium into a stream of income that begins within a year.

The biggest difference between substandard annuities and traditional SPIAs is that substandard annuities require medical underwriting. Customers must submit medical information verifying that they have certain health conditions to qualify for a substandard annuity.

While many people may avoid or hesitate to undergo medical underwriting for life insurance, in the case of substandard annuities, medical underwriting can be to your own benefit. The more advanced your medical condition, the more likely your payments will be accelerated. This can be particularly advantageous for individuals anticipating a future need for professional or nursing care, providing protection for their assets while maintaining a steady, guaranteed income that won’t be depleted by large medical bills.

Typically, SPIAs calculate a person’s annuity payments through actuarial tables that estimate the average life expectancy based on different ages and sexes. The longer the insurance company expects you to live, the longer they expect to pay out your annuity, and the smaller your payments will be.

If you can prove to an annuity provider that your life expectancy is likely to be shorter than the average person of your age and sex due to a health condition, then they will increase the amount you’ll receive in each payment. This is what’s known as a substandard annuity.

Substandard Annuity Age Ratings

When you complete the medical underwriting process for a substandard annuity, your annuity provider will give you an “age rating” that can be used to determine your life expectancy. For example, a 64-year-old with a disease such as emphysema might receive an age rating of 70. In this scenario, the provider will calculate annuity payments for that 64-year-old based on the life expectancy of a 70-year-old. 

The age rating you receive determines how much your annuity payments will increase over what a traditional annuity would pay. To illustrate how age ratings affect substandard annuity payments, the table below shows the monthly income that a 65-year-old male might receive from a $100,000 substandard annuity based on different age ratings.

Monthly Income for $100,000 Substandard Annuity

Rated Age Monthly Income Increase Over Standard Annuity
65 $680
66 $697 2.4%
67 $714 5.0%
68 $733 7.8%
69 $753 10.7%
70 $774 13.9%
Source: Institute of Business & Finance

Qualifying for a Substandard Annuity

To qualify for a substandard annuity, you must have a medical condition that could shorten your life expectancy. Not every condition will qualify for medical underwriting, and some providers may recognize medical conditions that others do not. 

Some examples of medical conditions that may qualify someone for a substandard annuity include:

  • Alzheimer’s
  • Alcoholism
  • ALS (Lou Gehrig’s disease)
  • Cancer (except basal cell)
  • Chronic Hepatitis/Hepatitis C
  • Congestive heart failure
  • Cirrhosis of the liver
  • Diabetes
  • High blood pressure
  • Injury due to a fall or muscle imbalance
  • Leukemia
  • Mental illness
  • Muscular dystrophy
  • Organ transplant
  • Paraplegia or quadriplegia
  • Parkinson’s disease
  • Renal failure
  • Stroke

Source: Broadridge Advisor Solutions

If you have one of these conditions, it might not make sense to purchase a traditional annuity because you’re less likely to receive the full value of your annuity. However, a substandard annuity can increase your monthly income, so you can maintain your lifestyle in retirement even if you have a lower life expectancy.

Will You Be Able To Maintain Your Retirement Lifestyle?

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  • Help protect your savings from market volatility
  • Guarantee income for life
  • Safeguard your family
  • Help you plan for long-term care

Speak with a licensed agent about top providers and how much you need to invest.

Editor Bianca Dagostino contributed to this article.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: January 31, 2024
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