A life annuity is a financial product that provides a guaranteed income stream for the rest of your life. When you purchase a life annuity in Canada, you have the option to choose a guarantee period, which is a specified period of time during which payments are guaranteed to continue, even if you pass away. In this article, we will explore how a guarantee period works with a life annuity in Canada.
Firstly, let’s define what a life annuity is. A life annuity is a type of investment product that is purchased from an insurance company. It provides a guaranteed income stream for the rest of your life, based on the amount of money you invest in the product. The amount of income you receive depends on a variety of factors, including your age, gender, and the current interest rate environment.
For example, if you decide to give the insurance company $100,000 from your RRSP account, they may agree to pay you $600.00 per month for the rest of your life.
Guarantee Period
When you purchase a life annuity, you can choose to add a guarantee period. A guarantee period is a specified number of years during which payments will continue to be made to your beneficiaries (e.g. spouse, children or estate), even if you pass away.
For example, if you choose a guarantee period of 10 years and you pass away after 5 years, your beneficiaries will continue to receive payments for the remaining 5 years of the guarantee period. These payments are usually paid as a lump sum amount to your beneficiaries using a present value calculation. This provides your beneficiaries
The guarantee period is an important feature of a life annuity, as it can help to provide financial security for your loved ones after you pass away. It ensures that they will continue to receive payments for a specified period of time, even if you are no longer around to receive them yourself. It can also protect a portion of your initial investment, all of your investment or even more than your initial investment into the life annuity.
The Length of Guarantee
The length of the guarantee period you choose will depend on a variety of factors, including your age, health, and financial situation. Generally speaking, the longer the guarantee period, the lower the monthly payments will be. This is because the insurance company is taking on more risk by guaranteeing payments for a longer period of time. Conversely, if you choose a shorter guarantee period, you will receive higher monthly payments, but your beneficiaries will receive less if you pass away during the guarantee period.
It is very common to see a 5 or 10 year guarantee period added to an annuity. You will notice when comparing quotes that it typically does not cost very much to add a 5 or 10 year guarantee period.
Single or Joint Life Annuity?
In addition to the guarantee period, there are other features of a life annuity that can affect the payments you receive. For example, you may be able to choose between a single-life annuity or a joint-life annuity. A single-life annuity provides payments for the rest of your life only, while a joint-life annuity provides payments for the rest of your life and the life of your spouse or partner.
The choice between a single-life annuity and a joint-life annuity will depend on your personal circumstances. If you are single, a single-life annuity may be the best option for you. However, if you are married or have a partner who depends on your income, a joint-life annuity may be more appropriate.
Conclusion
In conclusion, a guarantee period is an important feature of a life annuity in Canada. It provides financial security for your loved ones by providing peace of mind that a minimum amount of payments are guaranteed to pay out, regardless of your death. If you live beyond the guarantee period, you will still continue to receive your annuity payments from the insurance company.
Please reach out to us at Life Annuites.com to discuss your annuity options further. We can also run customized quotes from the top life insurance companies in Canada for you at no cost.