Basic Canadian Annuities
Term Certain or Fixed Term annuities payout for a specific pre-determined length of time or number of payments. Once this period is over, income payments cease and the annuity contract ends. A person would purchase an annuity like this if a guaranteed income stream was needed for a specific time period. When purchased with non-registered funds, the interest portion of your monthly payment is spread out evenly over the time period chosen. This levels out tax payments and minimizes taxes paid. If the annuitant dies before receiving all guaranteed payments, the remaining payments will be paid to a beneficiary.
Guaranteed Life annuities come in two different forms, single or joint. Single Life annuities pay a periodic income as long as the sole annuitant is alive. Joint Life annuities payout as long as one of the two joint annuitants is alive. Annuities can be purchased with registered funds from individual RRSPs, locked-in RRSPs, Pension Plans or Deferred Profit Sharing Plans. Life annuities can also be purchased with "after-tax" or "non-registered" funds.
Guaranteed life annuity payouts are higher for males than they are for females of the same age because mortality tables show that females on an average live longer than males. When a male and female of the same age purchase individual life annuities, the male will receive a slightly higher periodic payment than the female because the male's life expectancy is shorter.
Impaired Annuities are offered by some insurance companies. Proof of a diminished life span is required for consideration of this kind of annuity. This is a case where poor health raises the likelyhood of increased life annuity payments because of shortened life expectancy. If you have a health concern, make certain that you reveal it when investigating annuity payouts.
Child Inheritance Annuity This type of annuity is a tax saving strategy sometimes used on the death of an RRSP owner who has a dependent child or grandchild. RRSP funds of the deceased can be used to purchase a Term Certain annuity payable to the child's/grandchild's age 18. Annuity payments are then fully taxable to the child/grandchild.
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