About Insured Annuities

Insured Annuities

An Insured Single Life Annuity is the unique concept of purchasing a single premium prescribed life annuity with little or no guarantee period to generate income for a person's lifetime. This kind of annuity on its own does not provide any estate benefit but it produces the largest amount of monthly income of all the forms of life annuities. For estate purposes, the annuitant uses some of the income from the annuity to purchase a permanent life insurance policy, normally for the amount of the annuity.

The insured single life prescribed annuity ensures the annuitant a high after-tax income during his/her lifetime and the insurance protects the annuitant's capital while providing an estate benefit for his/her spouse or children.

Compared with traditional income-generating investments, insured annuities offer distinct advantages even when compared with the most conservative of investment vehicles. For example, many seniors keep a large portion of their investments in low interest bearing term deposits. Unfortunatley, some also keep substantial amounts in no-interest chequing accounts. The perceived advantage being that their capital is secure and they are willing to accept a low return in order to have somewhat ready access to their funds.

Insured Single Life Annuities can be purchased with amounts as little as $10,000. Generally, the older you are, the better the income from this kind of annuity. The most benefit is received from a non-registered prescribed annuity because of the preferential tax treatment given to the income received.

The following illustrative table shows the resulting annual after tax income for a single male, age 65, non-smoker in good health. He is in a 40% tax bracket. Amount invested is $100,000 of non-registered money. Income received is from a 5 year non-registered term deposit in 2011 receiving 3% interest. [Please note that in order to receive 3% interest income from a term deposit, the money would have be totally invested for 5 years without any withdrawals. At the end of the 5th year, $3,000 fully taxable interest would be paid out by the financial institution holding this investment. In order to receive $3,000 per year from this term deposit, an investor would have to have five layered investments of $100,000 each, which matured once every 5 years.]

This hypothetical term deposit investment is compared to the income from a non-registered prescribed guaranteed life pay annuity with a 0 year guarantee and a single $100,000 investment. The taxable portion of the annuity is the same every year. Annuity and life insurance figures are calculated as of June 2011. Totals are rounded to the nearest dollar.

Please note that a 0 year guarantee for the annuity means that the insurance company will not provide any further payments to the annuitant after he dies. At the point of death, annuity payments stop and a non-taxable death benefit of $100,000 is paid to any survivors.

This illustrates the higher income available from an annuity over income from a term deposit. The annuity income is taxed at a lower rate and upon death, all of the money used to purchase the annuity is replaced tax free for survivors.

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