Insured Annuities  

When one retires they are faced with a dilemma to provide adequate funds during their retirement and leave an estate to their children and spouse. An insured annuity provides the solution of guaranteeing an annuity payment income steam during one’s retirement and leaving a lump sum tax free benefit to their children and spouse. The annuitant can choose to name their spouse, children, grandchildren, best friend, church, synagogue, mosque, favourite charity, or a combination of any of the above as their beneficiary.

By purchasing an insured single life prescribed annuity with a limited or without any guaranteed payment period, the annuitant is able to generate the maximum amount of income during their lifetime. This kind of annuity on its own does not provide any estate benefit, it produces the maximum amount of monthly income for life. For estate purposes the annuitant uses some of the income from the annuity to purchase a permanent life insurance policy. The permanent life insurance policy leaves the annuitant's estate intact. The annuitant is able to generate an income stream in excess of the premiums required to pay for the permanent life insurance policy. 

The insured single life prescribed annuity guarantees the annuitant a high after-tax income during his/her lifetime and the permanent life insurance policy provides an estate benefit for their spouse, children or other beneficiaries.

Compared with traditional income-generating investments, insured annuities offer a distinct advantage. Seniors keep a large portion of their investments in low interest bearing term deposits and GIC’s. The interest earned in non-registered accounts is fully taxable with the exception of TFSA. If one was to try to live off their savings in traditional savings vehicles like GIC’ or term deposits they would deplete their funds and leave very little or nothing at all to their estate. Annuities are able to generate a higher income stream and the permanent life insurance policy guarantees to leave the value of the estate intact.  

Insured single life annuities can be purchased with even small amounts of $10,000. The older you are the higher the income from a prescribed annuity. The most advantageous benefit is from a non-registered prescribed annuity with preferential tax treatment on the annuity income payment stream. The preferential tax treatment is the result of the blended annuity income payment stream that comprise of both interest and principal.

Assumptions Used In Our Illustration

The following table illustrates the annual after tax income for a single male, age 65, non-smoker in good health in a 40% tax bracket. Amount invested is $1,000,000 of non-registered money. Interest income received from a 5 year non-registered GIC of $1,000,000 at a rate of 3% interest. Please note that in order to receive 3% interest income from a GIC the money would have to be invested for a 5 year term without any withdrawals. At the end of the 5th year, $30,000 per year for a total of $120,000 of fully taxable interest would be paid out by the financial institution. This GIC investment is compared to the income from a non-registered prescribed guaranteed life pay annuity with a 0 year guarantee period combined with a permanent life insurance policy, for the amount of the lump sum premium paid to the insurance company to purchase the annuity. The taxable portion of the annuity is the same every year. Annuity rates, life insurance premium assumptions reflect current market conditions. Interest rates on GIC term deposits reflect current market conditions. Please note actual figures will vary with market conditions of interest rates, annuity rates and premiums on permanent life insurance.

The single premium immediate annuity illustrated is with a 0 year guarantee. The insurance company will not provide any further payments after the annuitant's death. Once the annuitant is deceased the annuity payments stop and a tax free death benefit of $1,000,000 is paid to the beneficiary(s).

This illustrates the higher income available from an annuity over income from a GIC and term deposit. Only the interest portion of the annuity income payment stream is taxed, on death of the annuitant the money used to purchase the annuity is replaced tax free.

Annuities Are Complex Products That Require Professional Guidance

When deciding which type of annuity is best suited for you Stone-Hedge Financial Group Inc. will guide you through this process.

Stone-Hedge Financial Group Inc. will provide quotes from some of Canada’s most competitive insurance companies.

The information provided on this web site is intended for general information only. It should not be construed as legal, accounting, tax or specific insurance and investment advice. Clients should consult a professional advisor concerning their situations and any specific insurance and investment matters. While reasonable steps have been taken to ensure that this information was accurate as of the date hereof, Stone-Hedge Financial Group Inc. and its affiliates make no representation or warranty as to the accuracy of this information and assume no responsibility for reliance upon it.