Insured Annuity

The Opportunity

This strategy is appropriate for someone who has already retired or is approaching retirement, typically age 65 or over.  Your current investments consist of GICs and, although interest rates are at historic lows, you are living off the annual income provided by those GICs because you want to preserve the capital for your beneficiaries.

To receive a potentially higher after tax income, you might consider purchasing a life annuity however there is a significant drawback in that when you die, the capital is gone.  It is here that the Insured Annuity, a financial planning tool that combines a prescribed annuity and a life insurance policy, works most effectively.

The Concept

It is possible to substantially increase the after-tax rate of return on your retirement funds with the Insured Annuity when compared to investing in conservative interest-bearing investments such Government Bonds or Guaranteed Investment Certificates (GICs).  The capital invested, your age and gender will determine your annual annuity income.  A portion of the annual after-tax income can then be used to fund a life insurance policy.  Even after paying the tax and life insurance premium, you will increase your net income by 50% or more.

The Alternatives/issues

The Insured Annuity will typically provide you with more retirement income while at the same time, also ensuring your family is provided for on your death.

The prescribed annuity provides a guaranteed source of income for each year for the rest of your life.  Because you have used a capital sum to purchase the annuity, a portion of each payment received is considered capital.  Only the interest component of the annual annuity income, not the capital, is taxable.  Also, since this is a prescribed annuity, the taxable amount is averaged over the life of the annuity.  Both of these factors help maximize your after-tax return.  The insurance provides tax-free funds to your heirs on your death, replacing the capital you used to fund your retirement.