Canadian Annuity Glossary

Annuitant: The owner of the policy.

Annuity Policy: The contract between the owner and the insurance company where the insurance company agrees to pay specified amounts of money at fixed intervals to the annuitant who is the owner.

Beneficiary: The person who is entitled to receive further payments on the annuity should the annuitant die, where the agreement specifically contains a guarantee period and where death occurs prior to the end of the guarantee period.

Guarantee: Most policies provide that the periodic payments may be guaranteed to be paid for a certain length of time even if the annuitant dies. If the annuitant dies before this guarantee period the annuity may form part of his or her estate and the payments will continue to be made for the balance of the guarantee period. If the annuitant lives beyond the guaranteed period he or she would continue to receive the annuity payments for the balance of their lifetime, if the contract was life contingent.

Indexing: The annual increases to the periodic payments to cover the increase in the cost of living.

Medical Age Rate Up: The actual life expectancy of the annuitant is crucial to the payout of an annuity. This age rating is determined by the insurance company by their review of medical information regarding the annuitant.

Pension Income Credit As of the 2006 tax returns, if you are a Canadian senior, over age 65, with accumulated RRSP holdings, you are not yet aged 71 and you do not have any other pension income, you might consider placing at least enough of your RRSP savings into a registered annuity to generate $2,000 a year in annuity income which will qualify for the senior's pension income credit. A senior's pension income credit applies to the first $2000 of pension RRIF or annuity income and reduces taxes by up to $150 per person. This means that you would essentially release $2,000 tax free each year from your registered savings. [Neither the Canada Pension Plan nor Old Age Security apply]

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