An insured annuity sounds complicated, but it’s really quite simple. It’s a solution that uses two easy-to-understand products – a life annuity and life insurance. A life annuity is a product you purchase with a lump sum of non-registered funds in return for a guaranteed lifelong stream of equal payments.
The payments are part interest, part return of capital – and that has a significant tax advantage.
Tax is only payable on the interest portion of payment, whereas interest income from traditional non-registered investments is fully taxable.
That’s the annuity half, but if that’s all you did, you would leave no funds for your heirs. This brings us to the insurance half. The tax savings you receive from the annuity are applied to insurance premiums on a life insurance policy. You purchase a policy that has the same value as your annuity.
That amount is paid upon death to your beneficiary tax-free. In other words, the capital originally invested in the annuity is recovered. Ideal Profile: At least age 60, retired and in medium to high tax bracket. Depend on income from non-registered investments to supplement your retirement income.
You take comfort in knowing that part of your portfolio provides a guaranteed fixed income. You don’t want to encroach on your capital or outlive your savings. You’re able to lock in a sizeable lump sum for life. You’re of average health for your age and qualify for life insurance.
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