Life Annuities

A life annuity is a financial contract between a purchaser and a life insurance company. The life insurance company makes a series of future payments to the buyer.

An immediate annuity is started when the purchaser deposits a lump sum with the insurance company.

A deferred annuity can be set up with a single payment or a series of regular payments prior to the onset of the income flow for the purchaser also called the annuitant. The annuitant can choose a guaranteed return of up to 4% during the years it is deferred.

Thus a life annuity is a form of longevity insurance where the risk of running out of money before one’s death is transferred from the individual to the insurer.

Options within a life annuity

Single Life Annuity – payments continue until your death regardless of age.

Joint Life Annuity – (usually a couple) payments continue until the second death, either in whole or in part for surviving spouse.

Joint Life Annuity option can be used jointly between a parent and an adult child. Usually the income goes to the Parent until death and then flows to the adult child. This is helpful where there the adult child is dependent on the parent.

Guarantee Period – this guarantees the income will flow even after your death for a specific amount of time which you choose. So your money is not forfeited to the insurance company in the event of your early demise. Income payments continue to your heirs, or they can take a lump sum instead. These periods are optional and are your choice. (Some limitations may apply.)

CASHABLE LIFE ANNUITY: There are at least two Insurance companies that allow you to access all or part of your money should you require it or become aware of a better investment opportunity. The amount available is determined by the guarantee period you choose. You can have all or part of the current value of the remaining payments which you have not already used.

TAXATION: Inside a RRIF or LIF the money is all taxable. However with non-registered money there are some serious tax advantages. Depending on your age you could pay taxes on a small portion of your annuity income and people around age 80 don’t pay tax of any part of their income. These amounts compare favorably against any other guaranteed investment return.