Life Annuities
January 2005
A Life Annuity is a financial vehicle that allows you to exchange a lump sum of capital for a guaranteed income for as long as you live (or you and your spouse or partner lives).
There are several reasons why one might wish to convert a lump sum of capital to a life annuity. You may simply want to have the security of a guaranteed lifetime income instead of a steam of investment income that may fluctuate with economic conditions. You may have experienced erosion of your capital and would like to enhance your long-term security by opting for a guaranteed income. You may also want to use an annuity as part of a charitable gifting program or to enjoy the tax advantages of an Insured Annuity. Perhaps you are looking for a convenient and tax effective manner for funding a specific obligation or wish to make a lump sum deposit to fund life insurance or living benefit premiums.
Life annuity income payments are essentially a blend of principal and interest paid over your life expectancy. You make a lump sum deposit and a Life Insurance Company in turn pays you a guaranteed income for life. If you live beyond your life expectancy, the Insurance Company still continues the income payments.
While life annuity payments generally cease at death, you can elect to have a guaranteed minimum amount for a life annuity. For example, you can opt for a guaranteed payment period such as 15 years. This means that even if you pass away before 15 years of payments have been made, payments will continue for the remainder of the 15-year guarantee period.
We can also arrange an Insured annuity providing a 100% return of the annuity deposit at death combined with a tax effective lifetime income.
Life annuities are covered by the life insurance industry deposit insurance program (the Policyholder Compensation Corporation – “COMPCORP”) which guarantees that your annuity payments will continue (to a maximum of $2000/month or $24,000 / year per life insurance company) should the issuing company be declared insolvent. We note that the Life Insurance industry has an enviable record of financial stability.
Life Annuities can be purchased using “registered” funds (a transfer from an RRSP or RRIF) in which case the annuity income is fully taxable. Life Annuities can also be purchased using “non registered” funds in which case significant tax advantages can result.
A Life Annuity can be a very convenient and tax effective way to guarantee a secure income for you and your spouse or partner’s lifetime.
Your Rogers Group Financial Advisor can assist you in determining whether a Life Annuity should be part of your overall Financial Plan. He or she will assist with all aspects of the annuity purchase including a search of the Life Insurance Company marketplace in order to get you the most income for your capital. Please don’t hesitate to contact us for further information.