Over-55s are at risk of receiving lower rates when purchasing annuities because the majority incorrectly believe that disclosing health conditions will reduce the income they can receive.
As many as three-quarters (76%) of over 55s believe that disclosing medical conditions when purchasing an annuity will decrease the rates they can get, according to Legal and General.
The firm says that many see annuities in the same way as other insurance products, whereby medical conditions can negatively affect premiums, such as with travel insurance or critical illness cover.
In fact, disclosing pre-existing medical conditions, or lifestyle habits such as smoking and drinking alcohol, actually increases the money offered by an annuity provider.
This means that many people who purchase annuity products could be receiving a lower income than they could otherwise get, as many could be hiding problems unnecessarily.
The provider’s research also found that nearly half are not even sure what an annuity is. A total of 47% could not accurately describe the product when asked.
Emma Byron, managing director at Legal & General retail retirement income, comments: “Customers are confused about how annuities work. People with health conditions, as well as smokers and drinkers, stand to benefit from better annuity rates – but only if they disclose everything to their financial adviser or annuity company. First and foremost, we need to help customers to understand the potential benefits of annuities, which offer them a guaranteed income for life in retirement.
“Part of that is about education and information – but it’s also important that our industry talks plainly to consumers, removing the jargon and explaining the options available in a clear and helpful way. Just 26% of retirees have taken out an annuity, but there are thousands more who could benefit from a guaranteed income in retirement.”
An annuity, in its simplest form, is an insurance policy that pays out a guaranteed income every month until you die, in exchange for an upfront sum of money.
If you have medical conditions or lifestyle traits that the insurer believes will shorten your life expectancy, it is very likely that the provider will offer you higher monthly payments.
Annuities have become less popular in recent times, due to the launch of pension freedoms, which allows pension holders over 55 greater control over what they do with their pension savings.
According to the Legal and General research, just one in four (25%) retirees have taken out an annuity.
This article was originally written by our sister publication Moneywise.