What is a life annuity?
A life annuity is a financial product provided only by life insurance companies. Only an annuity guarantees that your income will continue no matter how long you live. After deciding how much lump sum will be used to purchase this kind of annuity, the purchaser can expect to receive a level monthly, quarterly, semi-annually or annual income for the rest of his or her life. This insurance contract guarantees income consisting of interest and a return of principal. If the purchaser lives long enough, eventually all capital invested is returned, nevertheless, the same level payments continue for as long as the purchaser is alive. A life annuity can also be purchased to provide lifetime payments for couples. Upon the death of one or the other, payments continue for the life of the survivor.
At older ages, there is the likelyhood that income from life annuities will be completely tax free. This makes a life annuity an important retirement income choice. Non-taxable income could significantly lower your taxable income thereby preventing the government from clawing back your Old Age Security income because your taxable income is too high.
It is recommended that you only use the portion of your savings that you need to cover retirement expenses to buy your annuity. Since interest rates are low right now, annuity payouts are not as high as they were several years ago. Remember, a potential disadvantage of purchasing an annuity is that the return on the investment is fixed on the date that you purchase the annuity and does not change. The advantage is that you are assured of receiving a guaranteed income for the rest of your life regardless of what happens in the market. There may be some merrit in laddering annuity purchases, with the hope of eventually obtaining higher returns.
Where do I find sources of annuities?
The following Canadian life insurance companies offer guaranteed Canadian annuities in one form or another. Canadian annuities can only be purchased by Canadian citizens.
- Assumption Life
- BMO Life
- Canada Life
- Desjardins Financial Security
- Empire Life
- Equitable Life
- Industrial Alliance
- RBC Life
- Sun Life
- SSQ Life
How do I determine which is the best life insurance company from which to purchase?
Short of calling each and every life insurance company to get quotes which you would need to compare for the best payout for your age and gender, it is recommended that you use the free services of a canadian annuity broker who will do this on your behalf. An annuity broker is a person licensed to sell annuities for more than one insurance company. It is expected from the very nature of the service that the annuity broker will be unbiased in his or her search for the best return for you. The broker will collect specific information from you and he or she uses the information collected from you to find the best annuity payout for you. Pressure from individual insurance companies to purchase their annuity product is avoided. Best annuity rates for you are based on your age, gender, sometimes health and market conditions at the time. The best source for your annuity will change from day to day, month to month.
Why should I use an annuity broker for an annuity purchase?
By using the free services of a broker you are able to compare plans and rates from leading insurers quickly and efficiently. When you start looking for an annuity, you will find that the payouts vary from insurance company to insurance company. Each insurer calculates their own annuity rates using the following criteria:
- the amount of money you want to spend to purchase your annuity.
- the type of Annuity you want to buy
- current Canadian interest rates
- your age, gender and the age and gender of your joint annuitant if any.
- the current interest rates
- the expense and mortality experience of each particular Canadian insurance company
The difference in life time payouts can be significant. Therefore it is vital to shop the market. You want to get the best return for your dollar.
For a free market survey of annuity rates, contact John Beaton toll free at 1-800-667-8818. As a professional life insurance/annuity broker, John Beaton will assess your requirements and will help find a plan that suits your time of life. The services provided are free of charge and you are under no obligation to accept any of the quotes you receive.